Icahn throws support behind latest Microsoft and Yahoo! deal

Icahn joined Yahoo!'s board after building up a stake in the internet firm, which now stands at 5%, and was a strong advocate of Microsoft's February 2008 bid to takeover Yahoo!

Icahn told Reuters: "I've been a strong advocate of getting a search deal done with Microsoft.

"It would enhance value if a deal got done, because of the synergies involved."

Senior Microsoft executives, including Yusuf Mehdi, senior vice president of the online audience business group, are said to have travelled to Silicon Valley to finalize the latest deal, which could be unveiled later this week.

It will call for Microsoft to pay Yahoo! $3bn upfront and then a share of its search advertising income as the two struggle to take on Google.

Google has a 65% share of the search advertising market, Yahoo! has less than 20% and Microsoft less than 10%.

Analysts see a combination of the two search businesses, which will be buoyed by Microsoft's recent successful launch of search engine Bing, as the only way to halt Google's near dominance.

The deal comes more than a year after the on-and-off again talks that began last February when Microsoft launched $44.6bn (£22.6bn) bid to acquire Yahoo!.

After months of wrangling Microsoft with its offer, Yahoo! founder Jerry Yang eventually stood down as CEO, replaced by Carol Bartz who has been responsible for hammering out a deal with Microsoft boss Steve Ballmer.

Bartz reopened talks with Ballmer earlier this year about forming some kind of alliance.

News of the deal was broken on Thursday by the Wall Street Journal blog  All Things Digital. It said the two sides were "down to the short strokes" after 18 months of going back and forth.