The Microsoft-Yahoo! rumors are back in full swing. The Times Online (see article) is reporting that Microsoft is in serious talks to acquire the search business of Yahoo! for $20 billion, much less than the original $47.5 billion offered for the company this past summer. Details have Microsoft obtaining a 10-year agreement to manage the search business with a two-year call option to buy the search business for $20 billion, which would leave Yahoo! with its email, messaging, and content services businesses. It is worth noting that the BoomTown blog is reporting that the story may be "Total Fiction," based on comments from those who are reported to be involved in the deal (see post). The post also mentions how the entire market cap of Yahoo! is just $16 billion. Yet, offering a premium to shareholders, even for only the most valuable part of the company, is certainly not unheard of.

The rumors have been given some leverage with the recent announcement that Jerry Yang, the CEO of Yahoo! will be stepping down as soon as a replacement can be found. Yang was thought to be the main roadblock to a summer merger. The news that Google has decided to pull out of its advertising deal with Yahoo! also helps to clear the path for a new merger agreement (see MarketWatch article). Always one to sense an opportunity, Carl Icahn has begun purchasing more shares of Yahoo! (see WSJ article), recently adding 6.8 million shares, raising his stake to about 5.5 percent of the company. The additional $67 million is a drop in the bucket compared to the nearly $1 billion that Icahn has already lost on previous positions, but does give him more bargaining power regarding any future board members and CEO.

Whether all of this is just another case of throwing good money after bad is yet to be seen. Yahoo! stock is up a few dollars to $11.51 per share after falling to a 52-week low of $8.94 a share. While Icahn has made some money on his recent purchases (average cost of around $9.88 a share), he may once again be at the mercy of any potential deal in order to realize the original value he was hoping to receive. With a larger stake, and current CEO Yang now less of a roadblock, Icahn may finally get the deal he wants, even if it ends up costing him after all is said and done. Retail investors that skipped the first and second rounds of merger talks, but have now entered after the most recent round of speculation, may fair better. Of course, this may have less to do with Microsoft and a growing Icahn put, and more to due with a market that is attempting to build a bottom and change momentum.

Yahoo! shareholders have until the end of the day Thursday (10 days after the announcement last week of the date of the shareholder meeting) in order to nominate candidates for Yahoo!'s board of directors. As discussed earlier, this short time was no accident, and puts the pressure on shareholders to get together and get organized, or find an high level investor willing to take the lead. If one were to take the lead, it would need to be someone with a large position, someone with the potential to make it larger, and someone not shy about stating their intentions? Who could it be? Any whales fit the bill?

Both CNBC and the WSJ are reporting that Carl Icahn may in fact be the vocal whale that disgruntled shareholders are looking for. Apparently Icahn is considering fighting for control of the company's board, with sources stating that Icahn may have acquired as many as 50 million shares of Yahoo!, or over 3.5% of the company. And of course, Icahn has the capital to acquire more if he wanted to. Again, the timing of the purchases is not totally clear, but it would explain somewhat how the stock has been propped up over the last few weeks.

This of course begs the question: Why does Icahn want control of the board? Does he really think that Microsoft will come back and offer $33 a share once again? Can he convince them to come back? Is there another strategic partner waiting in the wings? Does he want to integrate Yahoo! with Blockbuster and Circuit City? Just kidding about the last one ..... at least I hope. Seriously, other than Google or Microsoft, who could really partner with Yahoo! and add value, and would either Microsoft or Google, even if they were to partner, even pass anti-trust reviews? It is possible that there is a Time Warner / AOL connection, but again, the ability to add value is probably limited. It is really hard to see what his motivation is, other than believing he can get Microsoft back to the table with a +$30 offer, making a nice 20% or so profit in his shares. Otherwise, if it is not Microsoft, it is hard to see other integration possibilities that add value, just as it is hard to see how integrating Blockbuster and Circuit City together builds synergy. But then again, he is Carl Icahn, and he currently has a couple billion or more reason why he knows better than I do. Time will tell.