Summary:

Game on: Carl Icahn has confirmed a 59 million share stake in Yahoo (NSDQ: YHOO), and he plans to push for the marriage of it and Microsoft…

Game on: Carl Icahn has confirmed a 59 million share stake in Yahoo (NSDQ: YHOO), and he plans to push for the marriage of it and Microsoft (NSDQ: MSFT), according to a letter sent to the Yahoo board. In arguing the need to replace all 10 directors, Icahn stated: “the board of directors of Yahoo has acted irrationally and lost the faith of shareholders.” He has also, reportedly, asked the FTC for clearance to buy up to $2.5 billion worth of Yahoo shares. Among the names of the presumptive directors: Dallas Mavericks owner Mark Cuban, who of course made his fortune selling Broadcast to Yahoo at the very height of the bubble. There’s something beautiful there.

From the letter: More after the jump, including full Icahn letter.

“During the past week, a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.” (via WSJ)

Other names include himself, and familiar names Keith Meister (his number two) and Frank Biondi (who was reported last night) . The rest are: Lucian Bebcuk, John Chapple, Adam Dell, Edward Meyer, Brian Posner and Robert Shaye. Details on Icahn’s holdings and the individuals on the slate are in this SEC filing.

David adds: Despite Icahn’s latest maneuvering to push Yahoo back into talks with Microsoft, so far the Redmond software giant hasn’t offered any signs that it’s even interested in revisiting the deal, NYT points out. Microsoft withdrew its $47.5 billion ($33 a share) earlier this month, when Yahoo CEO Jerry Yang said he wouldn’t budge for anything less than $37 a share. A number of Yahoo investors have reacted bitterly to Yang’s spurning of Microsoft, which initially offered $31 a share for the company back in February. Nevertheless, some analysts consider Icahn’s move to oust the entire board is a bit of an overreach. The feeling is that he’d have a better shot if he scaled back and focused on proposing a smaller slate of new directors. Furthermore, by targeting Yang, who still has considerable support within Yahoo, many fear that pushing the CEO out would only serve to weaken Yahoo overall.

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May 15, 2008

Dear Mr. Bostock:

It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google (NSDQ: GOOG) on the Internet.

During the past week, a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.

While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain “strategic alternatives.” I therefore hope and trust that if there is any question that these “strategic alternatives” might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.

I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.

Sincerely yours,

CARL C. ICAHN

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