Microsoft Corp yesterday said that it would be willing to return to the negotiation table on a deal to acquire all or part of Yahoo Inc, provided a new Yahoo board is elected, shortly after Icahn, who owns more than 4 per cent of Yahoo stock, issued an open letter saying that over the past week he had spoken frequently to Microsoft CEO Steve Ballmer.

Microsoft had pulled out of talks with Yahoo over an unsolicited $47.5-billion bid.

Microsoft's statement is being interpreted as a clear show of support for billionaire investor Carl Icahn's alterante board slate to oust the current Yahoo board at the company's annual shareholder meet on 1 August.

Icahn says that Ballmer expressed his apprehensions over the possibility of the current Yahoo board mismanaging the company while a deal awaited regulatory approval. This he said was an impediment to Microsoft putting forth any proposals for the company.

Using this to drum up support for his slate, Icahn said that his proposed alternate board would offer Microsoft the security it needed to risk putting up any money for a deal during the regulatory process. He said not just Microsoft, but any acquirer would "want a steward they would feel comfortable with".

Yahoo responded to Icahn's disclosure saying in a statement that it continues to be willing to reopen talks with Microsoft, though any deal it negotiated with Icahn would not be in the best interests of Yahoo stockholders.

Yahoo's statement said, "If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately."

Meanwhile, talks between Yahoo and Time Warner for a possibel tie-up with AOL are said to be continuing though any deal is unlikely to materialise prior to Yahoo's 1 August stockholder meeting.

Meanwhile, in a flurry of developments related to the proposed sale, Icahn disclosed that he was actively interviewing replacements for Yahoo CEO Jerry Yang along with the management team. According to Icahn, he would act immediately to replace Yang if his board slate were elected at the August meeting.

Icahn's aggressive move is apparentlybeing matched by Yahoo's biggest investor, Capital Research, which, according to reports has already informed Yang it may vote against the board in the proxy fight.

After the collapse of talks between Microsoft and Yahoo!, Icahn amassed a stake in the search engine and launched a proxy war to replace the Yahoo board and management. He said they had "botched" the Microsoft talks.

In his letter, Icahn said: "Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo," including purchasing either its "search" function with large financial guarantees, or an outright purchase of Yahoo. Talks between Yahoo and Microsoft broke down in early May.

Microsoft originally offered $31 per share and raised it to $33, but failed to convince Yahoo! which demanded $37 per share.

Meanwhile, with strong signals emanating from Icahn and others that the second round for the acquisition of the search engine was now launched in earnest, Yahoo shares went up $2.56 to $23.91 on the Nasdaq, while Microsoft added 5 cents to close at $26.03.