Update: Microsoft says it would deal with new Yahoo board

In a statement Monday, Microsoft confirmed that it would be interested in resuming talks with Yahoo with a new board of directors, both to buy the search business or the entire company.

Billionaire investor Carl Icahn, who has been pushing for a deal with Microsoft and has proposed a new slate of Yahoo directors, also issued a letter Monday, confirming that he has discussed the scenario "frequently" during the past week with Microsoft CEO Steve Ballmer and other executives.

[ For the complete saga of Microsoft's attempt to take over Yahoo, check out InfoWorld's special report ]

In response to Icahn's letter, Yahoo's board of directors Monday said the company is ready to sell and urged Microsoft to make an offer for all of Yahoo now if it is still interested in buying rather than speculate about plans for some "future 'negotiation' between Mr. Icahn's directors and Microsoft's management."

"If Microsoft and Mr. Ballmer really want to purchase Yahoo!, we again invite them to make a proposal immediately," the company said in a statement.

It added that a deal between Icahn's proposed new board and Microsoft to only buy Yahoo's search business "would not lead to an outcome that would be in the best interests of Yahoo!'s stockholders."

In its statement, Microsoft said that, after Yahoo's shareholder meeting this quarter, it would be "interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the "Search" function with large financial guarantees or, in the alternative, purchasing the whole company."

Microsoft also noted that it talks with the current board have reached an impasse. "Despite working since January 31 of this year, as well as in the early part of last year, we have never been able to reach an agreement in a timely way on acceptable terms with the current management and Board of Directors at Yahoo!," Microsoft's statement said. " We have concluded that we cannot reach an agreement with them."

Ballmer expressed worry that the current board could mismanage the company during the months it would take for a sale to gain regulatory approval, putting Microsoft's investment at risk, according to Icahn.

Icahn has nominated a number of candidates to be named to the board at the company's August shareholder meeting. In the letter, he said he has "little doubt" that a new board will immediately begin negotiations with Microsoft and "move expeditiously" to replace current CEO Jerry Yang "with a new CEO with operating experience."

"There is no need to keep pointing out the mistakes I believe Yahoo! made by not immediately taking a $33 offer made by Microsoft. But one thing is clear -- Jerry Yang and the current board of Yahoo! will not be able to 'botch up' a negotiation with Microsoft again, simply because they will not have the opportunity," Icahn wrote.