June 3 (Bloomberg) -- Yahoo! Inc. Chief Executive Officer Jerry Yang is facing increasing shareholder pressure to sell the Internet company he helped found or step aside.

Billionaire investor Carl Icahn told the Wall Street Journal that if he wins control of the board, he will seek to oust Yang, who rejected a $47.5 billion takeover bid from Microsoft Corp. last month. Yahoo said today that it will hold the shareholder vote on the board on Aug. 1.

Icahn has amassed support for his proxy fight from hedge- fund manager John Paulson and BP Capital LLC Chairman T. Boone Pickens since Yang, 39, spurned the offer. Yahoo shares closed at $26.15 today, or 21 percent less than the last bid.

``Jerry Yang being removed from the board is a positive thing for any Yahoo shareholder,'' said Brian Bolan, director of research at Jackson Securities LLC in Chicago. ``With him at the helm, there hasn't been that great of a turnaround.''

Yahoo fell 25 cents to $26.15 in Nasdaq Stock Market trading at 4 p.m. New York time. The stock had dropped 32 percent in the year before Microsoft's disclosure of an offer on Feb. 1.

Icahn plans to make a public statement about his concern over Yang and the board's actions, the newspaper said. He didn't return a call from Bloomberg. As of May 15, he owned 10 million Yahoo shares and had options to purchase 49 million more.

Yahoo's Response

Yahoo, based in Sunnyvale, California, disputed Icahn's assertions in an e-mailed statement today, saying they ignore the ``clear factual record'' and that the two sides engaged in extensive discussions. Microsoft spokesman Frank Shaw declined to comment.

Before Microsoft's initial offer, Yahoo had reported eight straight quarters of profit declines after losing Internet search traffic to Google Inc. Microsoft had sought to shrink the gap with Google by acquiring Yahoo, a move that would almost triple its share of U.S. Web searches.

Yahoo investors allege the Internet company rejected a $40- a-share offer from Microsoft as early as January 2007, according to court documents tied to a lawsuit over the buyout. Microsoft's $47.5 billion offer, abandoned May 3, amounted to $33 a share.

``Whoever's suing the Yahoo management and board of directors, if they had a $40 offer and didn't take it, they're going to want to cut their throats for being that stupid,'' BP's Pickens told Bloomberg television in an interview yesterday. ``Anybody who sued them has got a good lawsuit, I'd say. I'd hate to be on that board of directors right now.''

Icahn's Strategy

Yahoo is ``unaware'' of having received a bid of that size from Microsoft, spokesman Adam Miller said today in an e-mailed statement.

Icahn said last month that he would oust Yahoo's directors if they failed to come to a deal with Redmond, Washington-based Microsoft. At the time, he made no mention of plans to get rid of Yang.

His slate of 10 nominees included himself, Dallas Mavericks owner Mark Cuban and former Viacom Inc. CEO Frank Biondi Jr. Yahoo has since cut the size of its board to nine members after the resignation of director Edward Kozel.

The company encouraged shareholders not to vote for Icahn's board members at the annual meeting, according to a regulatory filing today.

Sabotaging Talks?

Icahn accused Yang of sabotaging the talks through an employee severance plan, the Journal said, citing an interview with him. Icahn estimated that the plan, which would compensate any staff displaced by the acquisition, would have cost Microsoft $2.5 billion.

Icahn has led proxy fights at companies such as Motorola Inc. and drugmaker ImClone Systems Inc., frequently pushing them to sell part or all of their business to help revive sagging share prices.

Microsoft spent three months wooing Yahoo, owner of the second-most popular search engine, to compete with Google in Internet searches and online advertising. Ad sales reached $41 billion worldwide last year, according to Piper Jaffray & Co. Microsoft projected that may almost double by 2010.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: June 3, 2008 18:34 EDT