Microsoft allies with Carl Icahn

Yahoo's shareholder meeting scheduled for Aug. 1

NEW YORK -- Microsoft Corp. on Monday officially aligned itself with dissident Yahoo shareholder Carl Icahn in his effort to oust CEO Jerry Yang and other board members of the Internet company early next month.

Yahoo has scheduled its annual shareholder meeting for Aug. 1, where Icahn hopes to win a majority vote for an alternative slate of directors he recently proposed that includes such media and entertainment dignitaries as Frank Biondi, Robert Shaye and Mark Cuban.

Microsoft said it "would be interested in discussing with a new board a major transaction with Yahoo, such as either a transaction to purchase the 'search' function with large financial guarantees or, in the alternative, purchasing the whole company."

Microsoft had so far kept his distance from Icahn. But after talks between CEO Steve Ballmer and the former corporate raider last week, the firm concluded that an Icahn-controlled Yahoo is most likely to agree to a deal.

Indeed, Icahn said in an open letter Monday that he and Ballmer had spoken "frequently" during the past week, with some conversations that "lasted as long as an hour."

Icahn said that under his plans, he would "ask the board to bring in a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as 'Chief Yahoo.' " Google has had success with a similar management setup, he argued.

Yahoo hit back Monday, saying its board "continues to stand ready to enter into negotiations with Microsoft Corp. for an acquisition of Yahoo." But it argued that an Icahn-Microsoft deal "would not lead to an outcome that would be in the best interests of Yahoo's stockholders."

Yahoo shares jumped 12% Monday to 23.91 on the prospect of a possible sale.