Yahoo! Inc. [YHOO] late Wednesday issued a terse reply to a letter sent to its board of directors by Carl Icahn earlier in the day. Icahn called for Yahoo! to rescind a severance plan put in place by the company after Microsoft Corp. [MSFT] offered to acquire the company in February. The letter also criticized Yahoo! for bungling efforts by Microsoft to acquire it.

Yahoo! defended the retention plan, saying it was designed "to protect the company's assets and value during a time of uncertainty." It quibbled with Icahn's characterization of the plan as a "poison pill" and argued that the plan does not give employees the right to quit their job and receive termination benefits after a takeover, as Icahn claimed. Yahoo! also defended its handling of negotiations with Microsoft, saying it has been open to a sale to Microsoft, "as long as it is in the best interests of shareholders."

As Yahoo! points out in its letter, Icahn is relying on information gleaned from court documents in a shareholder lawsuit against the company that includes many unsubstantiated allegations, not facts. But Yahoo! itself is twisting how events went down to protect itself. The company is denying it ever received a $40 per share offer from Microsoft, conveniently hiding behind the excuse that it's possible one was made to former CEO Terry Semel, but that he never bothered to tell anyone.

Barring some kind of deal with Microsoft, the back-and-forth between Icahn and Yahoo! will continue through the company's Aug. 1 shareholder meeting. For shareholders, the vote will come down to whether they think the company should be sold and whether Icahn can successfully negotiate a deal with Microsoft. - David Shabelman

See June 4 letter to Yahoo! from Carl Icahn
See June 4 response from Yahoo! to Carl Icahn
See June 5 post from Portfolio.com