Billionaire investor Carl Icahn is setting out to oust Yahoo's board of directors for "irresponsible" and "unconscionable" actions that...

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SAN FRANCISCO — Billionaire investor Carl Icahn is setting out to oust Yahoo’s board of directors for “irresponsible” and “unconscionable” actions that led Microsoft to withdraw a $47.5 billion offer to buy the slumping Internet pioneer.

In a letter sent today to Yahoo Chairman Roy Bostock, Icahn wrote that outraged Yahoo shareholders had urged him to lead a campaign to replace Yahoo’s 10 directors at the company’s July 3 annual meeting in hopes of bringing Microsoft back to the bargaining table.

“I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies,” Icahn wrote.

To give him leverage in the looming battle, Icahn revealed that he has spent at least $1.3 billion snapping up about 59 million Yahoo shares to give him a roughly 4 percent stake in the Sunnyvale, Calif.-based company. He plans to seek approval from the Federal Trade Commission to acquire up to $2.5 billion in Yahoo stock.

A Yahoo representative said the company would respond to Icahn’s attack “soon.”

Icahn told Yahoo’s board it could quickly quell the shareholder mutiny by renewing negotiations with Microsoft.

Besides himself, Icahn’s alternate board of directors includes Internet entrepreneur Mark Cuban, who got rich by selling to Yahoo for $8.1 billion in stock in 1999. Cuban used part of his Yahoo windfall to buy the Dallas Mavericks, a National Basketball Association franchise that he still owns.

Icahn’s other notable nominees include venture capitalist Adam Dell, whose brother, Michael, founded Dell; and Frank Biondi Jr., the former chief executive of Viacom.

The revolt threatens to jettison Jerry Yang from the company that he started with David Filo 14 years ago. Yang is one of Yahoo’s directors and has been trying to engineer a turnaround since taking the job of CEO 11 months ago.

Together, Yang and Filo — both billionaires — still own 134 million Yahoo shares, or nearly 10 percent of the company.

Yang and the rest of Yahoo’s board are on the hot seat for rejecting Microsoft’s initial bid of $44.6 billion, or $31 a share, and taking measures that finally drove away the software maker.

Microsoft CEO Steve Ballmer orally offered to raise the offer to $47.5 billion, or $33 a share, earlier this month. He withdrew the bid May 3 after Yang and Filo, acting on behalf of the Yahoo board, held out for $37 a share — a price that Yahoo’s stock hasn’t reached in more than two years.

Yang has argued Yahoo eventually will be worth more than $50 billion if it can expand its share of a rapidly growing Internet advertising market that so far has been dominated by rival Google. In a forecast released while Yahoo tried to thwart the Microsoft bid, management predicted net revenue growth of at least 25 percent in 2009 and 2010 — well above its recent pace of 12 percent.

“It is irresponsible to hide behind management’s more than overly optimistic financial forecasts,” Icahn wrote. “It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72 percent premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer.”

Yahoo shares rose 61 cents, or 2.3 percent, to close today at $27.75.

While Icahn made it clear his challenge is aimed at selling Yahoo to Microsoft, there are no guarantees the software maker is still interested in buying its rival.

A Microsoft spokesman declined to comment on Icahn’s letter, saying the company has “moved on.”

That sentiment echoes what Ballmer and Microsoft executives have been saying publicly as they pledged to find other ways to bolster the company’s unprofitable Internet operations and mount a more serious challenge to Google.

But many analysts believe Microsoft is just posturing as part of a plan to depress Yahoo’s stock so it will be easier to negotiate a friendly deal within a few months. Others believe the window of opportunity is closing for a Microsoft-Yahoo deal, given that it might be more difficult to win U.S. antitrust approval for the combination after a new president ushers in a new administration in January.

Collins Stewart analyst Sandeep Aggarwal is in the camp that believes Microsoft will eventually buy Yahoo for $33 or $34 a share. The “body language from Yahoo and Microsoft do not suggest that both companies have really moved on,” Aggarwal wrote in a research note today.

If the two companies really abandoned hope for a deal, Aggarwal reasons they would have already announced other moves indicating they were going in a new direction.

For instance, Yahoo has been discussing a possible advertising partnership with Google for weeks without agreeing to a deal. And if Microsoft weren’t still interested in Yahoo, Aggarwal believes the company would have already announced another acquisition or “radical changes” in its strategy for building a more compelling Internet search engine.

In his letter, Icahn urged Yahoo’s board not to enter into any transactions, such as a Google ad partnership, that might ruin the chances of a sale to Microsoft. Ballmer cited Yahoo’s flirtation with Google as one of the reasons for Microsoft’s bid.

Icahn has a long history of challenging corporate boards and his efforts often result in shake-ups. Most recently, he has forced major changes at Blockbuster and Motorola. He also played a pivotal role in the recent $8.5 billion sale of business software maker BEA Systems to rival Oracle, which dropped an earlier bid of $6.7 billion.