Icahn wades into Yahoo-Microsoft battle

The billionaire investor Carl Icahn has begun building up a stake in Yahoo, emerging as the man most likely to lead a challenge to the internet company's decision to spurn a $46bn takeover offer from Microsoft.

Mr Icahn will decide today whether to try to force his own representatives on to the Yahoo board, in an attempt to get the company to restart talks. A deadline for challenging the re-election of directors at this year's annual meeting is tomorrow.

If he decides to press ahead, Yahoo will become the latest in a string of companies pressured by Mr Icahn, who made his name and his fortune as a corporate raider in the 1980s. In just the past 18 months, his intervention encouraged Motorola to spin off its mobile phone handset business, the biotech firm Medimmune to sell up to Astra-Zeneca and the tech firm BEA Systems to agree to be taken over by Oracle.

Many Yahoo shareholders have expressed their anger that Jerry Yang, its founder and chief executive, rejected a $33-per-share cash and stock bid from Microsoft this month, sending Yahoo shares sharply lower. Steve Ballmer, Microsoft's chief executive, withdrew the offer and has since committed to a go-it-alone strategy for its struggling MSN internet business. Mr Ball-mer had previously argued that a combination of Yahoo and MSN would have created an internet advertising giant better able to compete with the market leader, Google. Many angry shareholders contended that the Microsoft offer was pitched at a level higher than Yahoo shares are likely to reach, at least in the short term, and they may have accepted it or one slightly higher.

Mr Icahn refused to comment on reports that he has built a stake of close to 4 per cent in recent days. The news sent Yahoo shares up more than 5 per cent to $26.56 and still further in after-hours trading.

If Mr Icahn decides to go ahead and nominate a slate of directors to replace some or all of the Yahoo board, the proxy vote would be decided at the company's annual shareholder meeting on 3 July. A number of hedge fund investors have also been rumoured to be considering putting up a slate, and a pressure group of small shareholders has been calling for a boardroom shake-up.

It was unclear last night if any of Yahoo's major shareholders would support a proxy vote. It was also not clear that Microsoft would return to negotiations even if a new Yahoo board wanted it to.