Wagons circle around Yahoo

Yahoo! Inc. (NASDAQ: YHOO) Chief Executive Jerry Yang is bound to cry "uncle" sooner rather than later.

Pressure is mounting on the co-founder of the internet portal to do something -- anything -- to boost Yahoo's moribund share price. Billionaire activist investor Carl Icahn is leading a mutiny among shareholders disappointed that the company couldn't figure out a way to reach an agreement on a deal with Microsoft Corp. (NASDAQ: MSFT). Display advertising is coming under pressure as advertisers shift spending to search or demand steep rate cuts. Board member Edward Kozel today announced his resignation, another indication of management's growing isolation.

Yahoo management is clearly hunkering down. Today, comes word that the company is delaying its annual meeting from July 3 to the end of July. Is that enough time to reach an agreement with Microsoft or a search deal with Google Inc. (NASDAQ: GOOG)? Who knows? But you can bet that the meeting will not occur until there is some "good news" to report.

Meanwhile, Microsoft Chief Executive Steve Ballmer told a technology conference in Moscow that the Yahoo acquisition was not "strategic." Hmm, then why bother doing it? Clearly, Ballmer is posturing to get a better deal with Yahoo. Having Icahn on his side certainly helps.

As for Icahn's threatened proxy fight, the key word here is "threat." The last thing that Icahn wants to do is actually run a company. Operations just aren't his thing. But as he showed with Blockbuster Inc. (NYSE: BBI), Icahn is not afraid to wage proxy contests and win them. In Blockbuster's case, he trounced management. Whether that's a Pyrrhic victory remains to be seen. Shares of Blockbuster have tumbled more than 22% this year and investors are skeptical that buying Circuit City Stores Inc. (NASDAQ: CC) will boost the video-rental firm's lagging fortunes.

So,Yahoo shareholders should hope that Yahoo figures out a way to make Icahn and his allies happy before things get much worse.