Icahn, Microsoft Revive Hope for Yahoo! Deal

Shares of Microsoft were off 38 cents to $25.60.

Microsoft made an unsolicited bid for Yahoo! on Jan. 31, but talks collapsed when the two sides were unable to agree on a price. Microsoft then came back with an offer to buy Yahoo!'s search business, which Yahoo! refused. Instead, Yahoo! entered into an arrangement with rival Google(GOOG Quote), through which it would outsource some of its online ads.

But many investors have been holding out for a deal with Microsoft, as evidenced by Yahoo!'s share price, which plummets whenever a deal seems unlikely -- and soars whenever hopes are renewed.

Icahn is helping to fuel hopes again by engaging in talks with Ballmer.

"While there can be no assurance of a future transaction, as many of you know, I have negotiated successfully a large number of transactions over the past years," Icahn said in his letter. "If and when elected, I strongly believe that in very short order the new board would, subject to its fiduciary duties, be presenting to shareholders either a purchase offer for the whole company or a very attractive offer to purchase 'Search' with large guarantees."