Yahoo Inc. (NDAQ: YHOO) has bigger problems than Microsoft Corporation (NDAQ: MSFT) these days. The search giant is now trying to fend off activist investor Carl Icahn who has began his own campaign to force the Microsoft deal. So, what does Yahoo plan to do? Delay the inevitable of course! The company decided to put off its annual shareholders meeting until the end of July to give it more time to think.

Yahoo CEO Jerry Yang will now have to work to prove that he can win back investors after rejecting an offer from Microsoft. If not, Carl Icahn has promised a proxy battle to takeover the board and force an acquisition by Microsoft in order to unlock shareholder value. Currently, Yahoo shares are trading 17% below Microsoft's latest $33 per share takeover offer. However, Microsoft did say that it was pursuing a new transaction with Yahoo that didn't involve a takeover, but that it would reconsider a Yahoo bid at some point.

Icahn also has widespread support for his plans to force a Microsoft bid. He owns 10 million shares himself and has an option to purchase an additional 49 million. Furthermore, he has won support from investors including New York hedge fund Paulson & Co., BP Capital LLC Chairman T. Boone Pickens and Third Point LLC's Daniel Loeb. This represents a substantial amount of outstanding shares that would nearly guarantee a successful acquisition.

Meanwhile, Google is continuing is smear campaign against the merger. Larry Page came out saying that the combination would harm innovation by giving the combined company too much control over web communications. All of this complaining may pique the interest of anti-trust judges that are already on shaky grounds with Microsoft after their battle back in the late 90s and early new millennium.

In the end, the Microsoft buyout represents a huge premium for Yahoo shareholders that could take years to realize as an independent company. As a result, Carl Icahn and many others are pushing towards a sale. Whether or not Jerry Yang can successfully convince the rest that independence is the best route remains to be seen. But this stock is definitely one worth watching over the next few months!

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