• by Wendy Davis , Staff Writer @wendyndavis, May 16, 2008

Microsoft's Steve Ballmer might have walked away from Yahoo two weeks ago, but the drama is far from over.

Today, Yahoo head Jerry Yang asked staff to carry on as usual despite an upcoming proxy battle. "I ask all of you to put aside the rumors and speculation, and stay focused on the business at hand and what we do best--transforming the online experiences of our users, advertisers, publishers, and developers," he wrote in a letter.

The latest round of unrest was triggered by shareholder Carl Icahn, who announced he intends to run a slate of candidates to replace the current board. Peeved that Yahoo turned down Microsoft's offer to buy the company for around $33 a share, the aggressive Icahn has nominated 10 people for the board, including Harvard Law School's Lucian Bebchuk, former Universal Studios CEO Frank Biondi and entrepreneur Mark Cuban.

"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," Icahn wrote in a letter to Yahoo chair Roy Bostock.

Bostock fired back today. "Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal," he wrote to Icahn. "A fair-minded review of the factual record leads to one conclusion: that Yahoo's ten-member board, comprised of nine independent directors along with Yahoo CEO Jerry Yang, remains the best and most qualified group to maximize value for all Yahoo stockholders.

Of course, Icahn won't necessarily be able to force a sale to Microsoft even if he wins a proxy fight. The main reason Microsoft wanted to purchase Yahoo was to compete with Google. But Yahoo is on the cusp of signing a long-term deal for Google to power some paid search listings, according to a report in today's' New York Post.

Also, it's worth remembering that Icahn hasn't always been successful at forcing sales in the past. Several years ago, Icahn made rumblings about trying to force Time Warner to sell AOL, and even hired investment bank Lazard to explore options, but ended up abandoning the initiative.