Billionaire New York financier Carl Icahn is weighing whether to use the large stake he has amassed in Yahoo Inc. to launch a proxy fight to unseat some of the Internet pioneer's board members, two people familiar with the matter said Tuesday.
Icahn has purchased about 50 million Yahoo shares, about 3.6% of the company, since Microsoft Corp. pulled its $47.5-billion offer for Yahoo, according to the people, who spoke on condition of anonymity because the talks were confidential.
They said Icahn would decide today whether to nominate a partial slate of candidates to take seats on Yahoo's 10-person board -- a move designed to pressure the Sunnyvale, Calif., company to reopen talks and sell to Microsoft in a friendly deal.
Thursday is the deadline to nominate a slate of candidates for a shareholder vote at Yahoo's annual meeting, scheduled for July 3.
Investment firm Jana Partners, which has worked in tandem with Icahn in past proxy fights, is considering whether to join Icahn, one person said.
"There are different people coming out of the woodwork," he said. "There are funds that would sign on to the slate."
It was unclear Tuesday whether Microsoft would agree to reopen negotiations with Yahoo. The Redmond, Wash.-based software giant, which withdrew its unsolicited offer for Yahoo on May 3 after they failed to agree on a price, has given conflicting public statements in recent days on its willingness to revisit a deal.
Icahn, Jana, Yahoo and Microsoft declined to comment Tuesday.
Other activist investors also are eyeing Yahoo. They include Firebrand Partners founder Scott Galloway, who recently gained a New York Times Co. board seat through an activist campaign. Galloway declined to comment.
Yahoo shares rose $1.30, or more than 5%, to $26.56 after a CNBC report that Icahn might get involved at the urging of Yahoo shareholders.
Proxy advisors say it would take someone with Icahn's deep pockets and experience to mount a credible multimillion-dollar campaign. Icahn has launched campaigns against companies including Time Warner Inc., Blockbuster Inc. and BEA Systems Inc. He helped bring Oracle Corp. back to the bargaining table after it had walked away from its offer for BEA, which eventually agreed to a takeover.
More recently, the financier pushed for a shake-up at Motorola Inc., which said it would spin off its phone business after Icahn agitated for changes.
Loading up on Yahoo is a risky gambit. Icahn's success may hinge on whether Microsoft agrees to return to the negotiating table. If it doesn't, Icahn would have to hold his stake for some time.
Analysts were intrigued by the latest twist in the Yahoo saga. "We think Icahn has the resources, reputation, relationships and mettle needed to be potentially successful in bringing" Microsoft and Yahoo together, Standard & Poor's analyst Scott Kessler said.
Major Yahoo shareholders have taken the unusual step of publicly expressing their frustration with Yahoo management, in particular its chief executive, Jerry Yang, who has resisted selling the company he created. Yang and co-founder David Filo together own about 10% of Yahoo.
The "depth of dissatisfaction within the Yahoo shareholder base," combined with the high turnover of shares into the hands of short-term investors, amounts to a recipe for "activist stew," said Chris Young, director of mergers and acquisitions research at RiskMetrics Group, a proxy voting advisory firm.
He predicted Icahn would "have a significant block of support for a dissident slate."
Dissent from major shareholders encouraged Icahn to consider a boardroom coup, according to people familiar with the matter. Other activists have explored mounting a proxy campaign but no one could get a read on whether Microsoft would back a dissident slate. Microsoft CEO Steve Ballmer threatened to mount a proxy campaign but then backed off.
Icahn is more respected for handling unusual situations as a short-term investor than as an operational expert. For that reason, one major Yahoo shareholder said, a slate that would give him only a minority of the Yahoo board would be more likely to gain support from a wider swath of investors.
Dissident investor Eric Jackson, who had been working to nominate candidates for Yahoo's board with a group of 150 individual shareholders with about 3.3 million shares combined, said Tuesday that he had raised interest but not enough money to back the effort. He plans to urge shareholders to withhold their votes from Yahoo's board at the annual meeting.
Jackson said he would support a short slate from Icahn as long as "they are strong candidates and don't support selling to Microsoft at too low a price."
Which way Icahn is leaning remained unclear Tuesday night. He "is really trying to rally people," one person said. "He's ready to play."
But the person added: "Don't believe anyone who tells you exactly how this is going to play out. Calls are flying everywhere."
Guynn reported from San Francisco, Menn from Los Angeles.