The war of words between Yahoo! and Microsoft intensified today when the internet company released another letter to its shareholders.

Yahoo! said the agenda of the recently-formed alliance between Microsoft and billionaire activist investor Carl Icahn would destroy shareholder value.

Roy Bostock, chairman of Yahoo!, and Jerry Yang, chief executive, said in the letter that the company remains open to negotiating a “value creating” deal with Microsoft.

It said it was preparing to implement its recent commercial agreement with Google and was still exploring ways to unlock and return value to its shareholders.

Yahoo!, based in Sunnyvale, California, said it will sell the company to Microsoft for $33 a share or more “if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing.”

Yahoo! also said it is still open to selling only search to Microsoft “as long as it provides real value to stockholders.”

“Your Board of Directors believes strongly that the Icahn-Microsoft agenda - as presented to us jointly last week - will destroy stockholder value at Yahoo, serving only their very narrow special interests, clearly not your interests,” Yahoo! said.

Microsoft has been trying to buy Yahoo! for the past 18 months. At the end of January this year, Microsoft offered to pay $31 a share in cash and Microsoft stock for Yahoo! in a move that would have valued the internet search engine at $42 billion.

The offer was rejected as too low. Microsoft returned with a raised offer of $33 a share — or $5 billion more — and that too was rejected, despite representing a 72 per cent premium to Yahoo!’s share price. Last week, Yahoo! rejected another offer from Microsoft and Mr Icahn.

Shares of Yahoo! rose 4.6 per cent to $23.51 in premarket trading this morning.

The public letter accuses the alliance between Mr Icahn and Microsoft of continuing to make “misleading statements about their plans for Yahoo”. Its release comes two weeks before the crucial Yahoo! annual meeting on August 1, when Mr Icahn will seek to oust the board.

This week executives of AOL, the internet arm of Time Warner, met for formal talks with Microsoft to discuss a $40 billion break-up of Yahoo!.

It is understood that the AOL team flew to Microsoft’s headquarters in Seattle to negotiate possible terms of a break-up that could see the software giant seize control of Yahoo!’s online search business.

Microsoft wants to buy Yahoo! so that it can better compete with Google, the world’s largest internet company, to grab a bigger share of an online advertising market estimated to be worth about $40 billion a year and expected to double by 2010.

After Yahoo! and Microsoft walked away from talks, Mr Icahn acquired a 4 per cent stake in Yahoo! and tried to force Microsoft and Yahoo! to restart discussions.

He is angry that Yahoo!’s directors, led by Jerry Yang, its co-founder, refused to allow shareholders to vote on whether to accept any deal.

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