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The day talks between Microsoft and Jerry Yang collapsed, he may as well have painted a target on his back. The Chief Yahoo is now said to be in the sights of the arch-activist, Carl Icahn. Having rejected Microsoft’s proposal of $33 per share, Yahoo’s stock had sunk to about $24.50 in mid-morning trading on Tuesday. Investors are not buying Mr Yang’s assertion that Yahoo can surpass the valuation placed on it by Microsoft under its own steam.

Now that Mr Icahn is said to be involved, however, Yahoo’s stock has jumped to more than $27. The thinking is that Mr Icahn would force the company back into takeover negotiations, as he did with a reluctant BEA Systems after it rejected Oracle. If so, Mr Icahn would need to hurry. His main lever would be to put up an alternative slate of directors at Yahoo’s shareholder meeting. The wrinkle is that the deadline for doing so is on Thursday.

Mr Icahn could conceivably pull together a full hostile board in such a short space of time. But even if that proved too difficult, he could nominate just a handful of directors instead. A “short slate”, if elected, could still make life difficult for Mr Yang.

Investors buying on the rumour, however, should beware. A few new directors would be no guarantee of a deal actually happening – so they would need to be good enough to contribute meaningfully to the company’s turnround. Moreover, the collapse of Microsoft’s bid has left Yahoo in a twilight zone, subject to doubts over strategy, questions regarding leadership and residual hopes of a takeover. It is precisely in that sort of situation that Mr Icahn can thrive. But it is also one in which the mere mention of his name can be enough to move the share price.

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