June 4 (Bloomberg) -- Billionaire investor Carl Icahn said he will seek to replace Yahoo! Inc. Chief Executive Officer Jerry Yang and pursue a takeover by Microsoft Corp., saying it's the only way to salvage the Internet company.

In a letter to the board today, Icahn accused Yang of sabotaging the takeover by implementing a costly employee- retention plan. Redmond, Washington-based Microsoft abandoned a $47.5 billion takeover offer for Yahoo on May 3.

Combining with Microsoft is the only way Yahoo can become a ``true competitor'' to Google Inc. in Internet search traffic, Icahn said. Yang has insisted his company can fuel growth on its own, making Yahoo worth more than the $33-a-share bid from the world's biggest software maker.

``It will be extremely difficult for Microsoft or other companies to trust, work with and negotiate with a company that would go to these lengths,'' Icahn, 72, said in the statement.

Yahoo shares rose 83 cents, or 3.2 percent, to $26.98 at 2 p.m. New York time in Nasdaq Stock Market trading. Microsoft rose 14 cents to $27.45.

To contact the reporter on this story: Julie Alnwick in New York at jalnwick@bloomberg.net

Last Updated: June 4, 2008 14:06 EDT