Full-slate fight for Yahoo

Some observers say Icahn's involvement could increase the likelihood of reaching a deal. But his decision to try to oust the entire board -- including Yahoo's popular co-founder and chief executive, Jerry Yang, is considered bold and risky. It could destabilize the company should it remain independent. And it's unclear whether he can win shareholders' support at Yahoo's July 3 annual meeting.

Icahn's intuition has served him well in previous contests, observers say. He has engaged in 17 proxy fights since 2000, according to research firm FactSet SharkWatch. In six, he won or was granted board seats. In four, the proxy contest resulted in a spinoff or a share buyback. Two proxy contests are continuing: Biogen Idec Inc. and Yahoo. In the remaining contests, he lost or withdrew.

"This is a 12-round prize fight with each side feeling out each other's strengths and weaknesses in the early rounds," said Chris Young, director of mergers and acquisitions research for advisory firm RiskMetrics Group.

Yahoo is on the defensive. It has received a deluge of letters from shareholders angered by the company's tactics during negotiations with Microsoft. Two of its largest institutional shareholders, Capital Research Global Investors and Legg Mason Capital Management Inc., voiced rare public frustration when talks collapsed.

Late Thursday, Legg Mason Chief Investment Officer Bill Miller called Icahn's group of nominees "a solid slate. I know a couple of them quite well and have a high regard for their judgment and integrity." But Miller also called Bostock's letter "complete and candid," suggesting he hadn't made up his mind on how to vote.

Yahoo will have to cast Icahn as a short-term profiteer who cannot be entrusted with shareholders' best interests, NYU's Yermack said.

Investment firm Paulson & Co. said it had bought 50 million Yahoo shares and would support Icahn's boardroom coup but hoped the companies would reach a deal first.

Another major shareholder in both companies said Yahoo would have a tough time remaining independent.

"The shareholders own the company, and Jerry did not give the shareholders a chance to express their opinion. Now he has got to deal with Icahn," said Larry Haverty of Gabelli Funds' Gamco Investors. "If we go to an election, Icahn will win."

Yahoo is vulnerable to a proxy battle because it does not have a "staggered" board. That means all of its 10 directors are up for reelection at the company's annual meeting.