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A ceasefire with activist investor Carl Icahn has earned Yahoo Inc.'s board of directors a respite from the uncertainty swirling around the embattled Internet pioneer, but left its future is far from settled and even revived speculation about a link with AOL.

For weeks it appeared as though Mr. Icahn and Yahoo were headed for a nasty proxy fight for control of Yahoo's board at the annual shareholders' meeting scheduled for Aug. 1. Then yesterday, Yahoo announced it had reached a truce with Mr. Icahn over the weekend, one that gives the New York billionaire three seats on the company's 11-member board of directors.

They had been at loggerheads since May, when Yahoo rebuffed Microsoft Corp.'s $47.5-billion (U.S.) takeover bid. Mr. Icahn swooped in to purchase 5 per cent of Yahoo's shares and tried to resurrect talks with the software giant.

Mr. Icahn will take up one of the three board seats he has won, but it's the nomination of the only other candidate announced so far - former AOL chairman and chief executive officer Jonathan Miller - that has analysts buzzing about Yahoo's next possible move.

"A Yahoo-AOL combination? Jon Miller seems like he would know the ins and outs of it," said Canaccord Adams research analyst Colin Gillis.

From the moment Microsoft stated its intention to purchase Yahoo in January, Time Warner Inc.'s beleaguered AOL has been mentioned as a possible Plan B for both companies.

Last week, The Wall Street Journal reported that Microsoft and AOL executives were in talks about a possible merger to enhance the software kingpin's online repertoire. Yahoo has also reportedly reached out to AOL executives about a possible merger or partnership over the past few weeks.

One option for Yahoo would be to rid itself of its lucrative Asian assets - including Yahoo Japan and Alibaba in China - and use the cash generated from such a sale to purchase AOL outright. Mr. Gillis estimates that Yahoo's Asian holdings are worth as much as $16.6-billion (U.S.).

There is already speculation that Mr. Miller is being earmarked to take over from Yahoo co-founder Jerry Yang as the company's next CEO. Mr. Yang reportedly backed Mr. Miller's appointment to Yahoo's board, marking a rare moment of consensus with Mr. Icahn.

The deal means Mr. Icahn is one less thing Yahoo needs to worry about as it prepares to report its second-quarter results after the markets close today. Tech stocks are expected to continue the downward slide they have been on as the U.S. economy weakens.

Mr. Miller ran AOL for four years and was credited with modernizing the division by shedding its legacy dial-up access business and moving away from content subscriptions in favour of an advertising-based business strategy.

But adding AOL, which has struggled to maintain its share of search and display advertising, could be more than Yahoo can handle right now as it attempts to prove it can remain a viable independent company without Microsoft.

"Yahoo is such a mess right now," said Ross Sandler, senior Internet analyst with Royal Bank of Canada's securities arm. "They need to prove to shareholders that they can unlock some value here and get the stock working in the right direction, and buying another huge messy company like AOL probably isn't the right thing to do right now."

Analysts agree that a deal that could see all or part of Yahoo sold to Microsoft remains very much a possibility, an eventuality Mr. Icahn is likely to continue to push for.

Investors pushed Yahoo's stock down 3.5 per cent yesterday, closing in on the 52-week low of $18.58 it hit on Jan. 30, the day before the first Microsoft offer. Yahoo's stock is down nearly 35 per cent from the $33 Microsoft offered in May. "The stock is down today because this means that a sale to Microsoft is not likely to happen in its entirety, at least not right away," Mr. Gillis said.

Under the agreement reached with Mr. Icahn, eight of the nine directors currently on Yahoo's board - including Mr. Yang and chairman Roy Bostock - will remain while Activision Inc. CEO Robert Kotick will resign.

YAHOO INC.

Close: $21.67, down 78¢

MICROSOFT CORP.

Close: $25.64, down 22¢

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