Icahn may run Yahoo proxy campaign: source

NEW YORK (Reuters) - Billionaire investor Carl Icahn is considering running a proxy campaign to elect new board members at Yahoo Inc (YHOO.O) after the company failed to forge a deal to merge with Microsoft Corp (MSFT.O), a source close to the matter said on Tuesday.

The veteran investor has built up a stake in Yahoo in the last week and would run a slate in an effort to force the company back to the negotiating table with Microsoft, the source said, asking for anonymity because the decision to go ahead with the move has not yet been made.

It is unlikely that Icahn, a veteran of numerous proxy battles, will join with other hedge funds in the campaign, the source said. A decision to run a proxy slate this year must be made by Thursday for the July 3 annual meeting.

The size of the stake Icahn has built could not immediately be determined. He had no shares as of early last week, the source said. The Wall Street Journal said Icahn has amassed a stake of roughly 50 million shares, or less than 4 percent of the company.

One lawyer who has worked with Icahn in previous campaigns said such a campaign could have good odds of success, providing Microsoft is willing to come back to the bargaining table, which he said is probable.

"The odds are pretty decent," said Marc Weingarten, an attorney with Schulte Roth & Zabel, who said he is not currently involved in any plans for a Yahoo proxy campaign.

"Yahoo has a lot of unhappy shareholders. And if someone could press the company in getting something done, I would think there is a decent chance at a transaction."

One hedge fund manager who heads a large activist fund said it is "a likely possibility" that Icahn would run a Yahoo campaign. The manager, who has worked with Icahn on previous campaigns, asked to remain unnamed.

Microsoft walked away from its bid to buy Yahoo earlier this month after the Internet company turned down its offer to raise its price by $5 billion to $47.5 billion, or $33 per share. Yahoo demanded $37 per share.

Since then, neither company has expressed any interest in reviving the talks.

Should he decide to get involved, Icahn could be in a position to force the companies to restart the talks. Not only does he have the financial resources to spend the millions of dollars needed for a successful proxy campaign, he also has experience in pressuring companies back to the bargaining table.

Last year, for instance, Icahn was successful in getting Oracle Corp (ORCL.O) to return to the bargaining table to buy BEA Systems BEAS.O after those talks collapsed.

Yahoo shares surged 5.1 percent after news of a possible Icahn move on Yahoo was reported by CNBC this afternoon. The shares closed up $1.30 at $26.56.

The possibility of a proxy battle has loomed since earlier this month, when Yahoo disclosed that it rejected Microsoft's offer, sending Yahoo shares down.

One Yahoo shareholder, Eric Jackson of Ironfire Capital, said last week that he was working to line up support to run a dissident director slate. Today, Jackson said he could not line up financing for a proxy campaign that he said could cost at least $1 million. He told Fox Business Channel he would likely support an Icahn slate, depending on who Icahn proposes.

"It basically came down to dollars and cents," said Jackson in an interview. "The SEC hasn't enacted some sort of open proxy access and that makes it difficult for a shareholder like me to belly up to the bar and put up $1 million. That's the bind I'm in."

Jackson said he still plans to run a "no vote" campaign against current directors, which basically entails reaching out to shareholders and asking them not to endorse the company-sponsored slate.

Jackson was instrumental last year in a campaign to have former Yahoo Chief Executive Terry Semel replaced.

(Reporting by Dane Hamilton)