This week Icahn delivered his hardest-hitting comments yet.  In them he says that if his takeover is successful, he will seek to depose Yahoo co-founder and CEO Jerry Yang, whom he sees a roadblock to a merger.  While Icahn was delivering his comments, Yahoo's board was busily meeting to discuss possible limited partnerships with Microsoft or the possibility of outsourcing its search functions to Google Inc.

In an interview Icahn laid on the criticism thickly for what he believes are disingenuous actions on the part of the board and Yang in their willingness to consider an offer.  He also accuses them of intentionally setting of an artificially costly employee-retention plant to deter a potential deal.  Icahn comments, "I am amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation."

He will seek to oust the current board at the annual shareholder meeting.  He seeks to replace it with a Microsoft-merger-friendly dissident board, which includes billionaire buddy Mark Cuban.  The meeting was originally set to be held on July 3, but it got pushed back August 1 by a nervous board.  The board blasted back at Icahn in a statement, saying, "Yahoo's board of directors, including Jerry Yang, has been crystal clear that it would consider any proposal by Microsoft that was in the best interests of its shareholders."

A new Yahoo shareholder lawsuit just unsealed provides details which cast a surprising new light on the Microsoft-Yahoo saga.  The suit refers to a refusal of an informal $40 a share offer from Microsoft in January 2007 when shares were trading between $26 and $29. 

However, Yahoo and the board publicly stated that they would consider favorably offers of $37 a share or more.  Microsoft had publicly stated that it was only willing to offer $34 or $35 a share, but it is entirely possible that it offered more behind closed doors.  Unsurprisingly, a Yahoo spokesman said that the board was "not aware" of a $40 a share offer.

Along with the surprising revelation of possible deceit on the board’s part, the suit also provides details on the employee-retention program, which Icahn says was constructed as an artificial roadblock to a merger.  The plan would apply to Yahoo employees who were fired without "cause" or had "good reason" to quit in case of a merger.  Such employees would be awarded exceptional severance packages -- as much as $15,000 in additional reimbursement, full pay for as much as two years, and medical and dental coverage for some months.

Based on his own calculations Icahn says the package would have cost Microsoft around $2.5 billion, which Microsoft was well aware of.  This, Icahn said, helped to kill the deal.  Yahoo contends the package would only cost between $462 million and $2.1 billion depending on the number of departing employees.  Icahn points out that the plan contained seeming outlandishly flexible provisions, such as full severance (including full pay at their former salary) to any employees who saw their job descriptions change.  Thus in the case of shuffling of responsibilities, some employees could be taking home two paychecks for one job, for over a year.

Icahn comments, "It's no longer a mystery to me why Microsoft's offer isn't around.  How can Yahoo keep saying they're willing to negotiate and sell the company on the one hand, while at the same time they're completely sabotaging the process without telling anyone?"

He states that trust between Microsoft and Yang has been completely lost and while Yang heads the company a merger is impossible.  Indeed, Microsoft today is lukewarm about any potential deal. 

The shareholder lawsuit brought against Yahoo has raised some startling accusations.  If they hold true, the picture of the Yahoo-Microsoft saga may change from one that seemed to be a dueling battle of egos, to that of a faltering company trying to jealously and deceptively hold on to its independence at the expense of its shareholders.  If this proves true, it will surely aid Icahn in his efforts to oust the board and Yang.