Icahn may run Yahoo proxy campaign: source

NEW YORK (Reuters) - Billionaire investor Carl Icahn is considering mounting a proxy campaign to replace Yahoo Inc (YHOO.O) board members after the company failed to reach 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 to qualify for the July 3 annual meeting.

Still, other activist hedge fund managers may try to get involved, including Scott Galloway and his investment firm Firebrand Partners LLC, the Wall Street Journal reported on Tuesday evening, citing people close to the matter.

Galloway won a seat on the New York Times Co (NYT.N) board last month after hedge fund Harbinger Capital Partners spent half a billion dollars to bankroll his campaign to try to force change at the newspaper publisher.

Galloway, a professor at New York University's Stern School of Business, declined to comment on the report. A Harbinger representative was not immediately available for comment on whether it would back Galloway if he were to wage a campaign against Yahoo.

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

A Yahoo spokesman declined to comment on Icahn's potential moves. Microsoft executives have said they were done with their pursuit of Yahoo, and one person close to Microsoft on Tuesday said that remained the case.

The size of the stake Icahn has built could not immediately be determined. He had no Yahoo 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's roughly 1.44 billion shares outstanding.

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 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 unidentified.

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 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 on Tuesday afternoon. The stock closed up $1.30 at $26.56 on Nasdaq.

The possibility of a proxy battle has loomed since Yahoo rejected Microsoft's offer, sending Yahoo shares tumbling.

One Yahoo shareholder, Eric Jackson of Ironfire Capital, said last week he was working to line up support to run a dissident director slate. Jackson said on Tuesday 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," Jackson said 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.

(Additional reporting by Eric Auchard in San Francisco, Anupreeta Das in Chicago, Robert MacMillan in New York and Daisuke Wakabayashi in Seattle; editing by Richard Chang and Braden Reddall)