The chances of Yahoo!'s (NASDAQ:YHOO) board surviving next month's annual shareholder meeting continue to narrow.

Carl Icahn and Microsoft (NASDAQ:MSFT) issued back-slapping statements this morning, essentially announcing that the software giant is open to a new deal with Yahoo!, but only after the existing Yahoo! board is replaced.

Icahn and Microsoft have met over the past week, confirming Microsoft's renewed interest in buying either all of Yahoo! or simply its search business if Icahn is successful in getting his alternate slate of directors elected next month.

Yahoo! shares climbed on the news, which is a refreshing change for Yahoo! investors, but a wake-up call for current board members to start clearing their desks. Microsoft considers it "premature to discuss at this time important details such as the price or other terms of a possible transaction," though one would think that it won't be much lower than the original $31 offer, despite the erosion of Yahoo! in recent months.

Microsoft is likely to carve up Yahoo! if it settles for swallowing it whole. It can unload Yahoo!'s non-search properties to traffic heavies like Time Warner's (NYSE:TWX) AOL or News Corp.'s (NYSE:NWS) MySpace for a pittance, though it may be best served to hold on to those pages to build its display advertising business. It can probably keep Yahoo!'s 10% piece of South Korea's Gmarket (NASDAQ:GMKT), though it may be forced to unload its valuable stake in China's Alibaba. The jury is still out on Yahoo!'s interest in Yahoo! Japan. In short, Yahoo! is a fixer-upper, but Microsoft needs to buy the house before it can start the remodeling.  

Google (NASDAQ:GOOG) appears to be the loser here, missing out on the chance to service Yahoo!'s paid search if Microhoo becomes a reality. I don't necessarily agree. Microsoft and Yahoo! hooking up would be little more than two fading search stars in a leaky lifeboat, giving Google more antitrust wiggle room in the near term. This may actually be the best thing for Google, especially if regulators were going to forbid Yahoo! from outsourcing its ineffective ad space to Google.

Either way, things just got a whole lot more interesting. Microsoft is getting what it wanted all along by letting shareholders decide on the fate of Microhoo. Yahoo! shareholders are unlikely to turn down Mr. Softy's hand in a rescue attempt, leaky lifeboat and all.

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