Microsoft backs Icahn's bid to oust Yahoo board

The unexpected endorsement gives Icahn a carrot to dangle before Yahoo shareholders as he wages an acrimonious campaign to replace Yahoo's nine directors at the company's annual meeting Aug. 1.

It marks the first time that Microsoft has publicly sided with Icahn since the billionaire investor launched his attempted coup nearly eight weeks ago.

The two sides decided they could work together after Icahn held "frequent" discussions with Microsoft Chief Executive Steve Ballmer and some of his top lieutenants during the past week, according to a letter that Icahn sent Monday to Yahoo shareholders.

Industry analysts said Icahn now has more credibility with Yahoo shareholders because he has been arguing that a purge of Yahoo's board is the only way to salvage a deal with Microsoft.

"This breathes new life into Icahn's proposal," said Stanford Group analyst Clayton Moran. "It really pushes the power to Icahn and his board (nominees)."

The prospect that a changing of the guard at Yahoo might pave the way to a friendly deal with Microsoft lifted Yahoo shares $2.56, or 12 percent, to finish Monday at $23.91.

Echoing previous remarks in its battle with Icahn, Yahoo questioned Microsoft's interest in buying the entire company.

"If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo said.

But Icahn said Microsoft doesn't want to risk making a bid under Yahoo's current regime, because the software maker fears Yahoo's management would make more poor decisions during an antitrust review that would take at least nine months.