Mr. Icahn is in the processing of carrying out a hostile takeover of Yahoo's board in which he hopes to oust the board and Yahoo's cofounder and chief executive, Jerry Yang, at the August 1 yearly shareholder meeting if a comprise is not reached before hand.

According to Yahoo, Microsoft and Icahn approached it with a newly packaged version of a bid for its search businesses. Microsoft previously sought to buy only Yahoo's search businesses for a large premium, but was rebuffed. 

Yahoo claims that the proposal blindsided it, when delivered Friday, and claims that the pair unfairly gave it less than 24 hours to reply.  Using that as its justification, Yahoo's leadership lashed out at Microsoft and Icahn in a harshly worded statement that is sure to only elevate conflict between the pair.

In the statement, Yahoo Chairman Roy Bostock writes, "It is ludicrous to think that our board could accept such a proposal.  While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders."

Mr. Bostock also revealed that Microsoft is now unwilling to commit to anymore talks with Yahoo's senior management or board, a stance which he labels as "completely absurd and irresponsible".  His statement and the allegation it relates to are yet another indication of the bad blood seething between Microsoft and Yahoo.

Microsoft and Icahn politely declined to comment on Mr. Bostock's diatribe.

Yahoo indicated that it asked Microsoft to purchase the entire company at $47.5B USD, or $33 per share, a price Microsoft claims Steve Ballmer verbally offered in previous talks.  At the time, CEO Jerry Yang had demand $37 a share.  Now Microsoft is uninterested in buying the entire company, considering it not worth the investment and trouble.  Sunnyvale-based Yahoo has yet to explain its logic in trying to pursue the offering price it previously rejected, but it appears to be acknowledgment by the company's leadership of its own devaluation and/or a move motivated by fear of deposition by Mr. Icahn.

Fortune’s Adam Lashinsky points out, "That’s a price it easily could have gotten in February but one that Microsoft doesn’t appear willing to pay today."

In May, Microsoft offered to buy Yahoo's search engine business for $1B USD and for another $8B USD acquire a 16 percent stake in Yahoo's remaining operations.  Yahoo continues to insist that Microsoft's new proposal, though even sweeter, isn't good enough.

Yahoo has gone to great lengths to remain in control of its destiny, including allying itself with arch-nemesis Google, who has been steadily stealing market share from it.  It has also shaken up its senior management, thanks in part to a need to change and part to numerous departures by Yahoo managers who insist they aren't leaving merely because "the ship is sinking."