Will he or won't he? That's the question of the day surrounding Yahoo! Inc. [YHOO] amid speculation that Carl Icahn could be close to staging a proxy fight for control of the company's board of directors. A formal announcement of his plans could come as early as Wednesday, according to reports, just ahead of a Thursday filing deadline for Yahoo!'s annual meeting July 3.

Icahn probably would not go to all the trouble of amassing a 3.5% stake in Yahoo! if he wasn't intent on pursuing a proxy battle, though there are a number of potential roadblocks that could thwart him.

The biggest appears to be whether Micorosoft Corp. [MSFT] would still be interested in acquiring Yahoo! should Icahn take over the board. All indications are that the company has moved on, though it's entirely possible Microsoft is just posturing and would gladly come back to the negotiating table if it could acquire Yahoo! for $33 a share, or $47.5 billion, its last offer price.

Analysts at Stifel, Nicolaus & Co. contend that even if Icahn wins a proxy fight, the process could be damaging.

"In our view a successful proxy battle is a bit like a scorched-earth policy -- you may win the battle, but what you ultimately win will be so damaged that it wasn't worth fighting for," analysts George Askew and Scott Devitt wrote in a research note Wednesday. "We believe this is why Microsoft didn't pursue a proxy battle, and we don't think the software giant's view will change with Carl Icahn doing the dirty work."

Icahn also must take into account what Yahoo!'s response to a proxy might be, especially when you consider the company already was planning for Microsoft to start a proxy fight if the two sides couldn't reach a friendly agreement. Yahoo!'s most likely course of action would be to revive the much-discussed plan to outsource its search advertising to Google Inc. [GOOG] or to renew talks on a deal to acquire AOL LLC.

There's little doubt that shareholders would back Icahn's efforts at taking over Yahoo!. But what's more important is whether Icahn has the backing of Microsoft and whether Yahoo! can erect enough stumbling blocks to thwart his efforts. - David Shabelman

See May 14 story on Icahn's stake from TheDeal.com
See May 14 post on Icahn and Yahoo! shareholders from DealBook
See May 13 post on Icahn from BusinessWeek