Icahn sets price tag for Yahoo

This post was updated at 1:38 p.m. PDT, with Yahoo's closing price.

Making his first public statement on a specific purchase price for Yahoo, billionaire investor Carl Icahn on Friday told the company's chairman to offer up Yahoo to Microsoft for $34.375 a share.

The topic of price, which Icahn was coy about during his interview on CNBC earlier this week, was one of two interesting nuggets in his saber-rattling letter to Yahoo's chairman Roy Bostock. That letter was one of several Icahn has sent to Yahoo since launching his proxy fight.

The second interesting tidbit is that Jerry Yang wouldn't be banished from Yahoo, should Icahn's dissident slate succeed in unseating Yahoo's current board at the August 1 shareholders meeting. Icahn is willing to let Yang hold onto his employee identification key as "Chief Yahoo," although his current CEO title would have to go.

Keeping Yang around would serve Icahn well on a number of fronts. For one, it may help with employee retention to keep the founder and familiar face wandering around the campus. Two, it may help his campaign to woo investors to vote for his dissident slate of directors, if they knew Yang would still be allowed in the building to offer advice and historical perspective to a new board. Question is, would Yang accept such a role?

On the money front, Icahn suggested to Bostock:

In my opinion, Microsoft does not believe you will ever sell the entire company on a friendly basis. So why don't you stop dancing around the subject and publicly offer to sell the company to Microsoft for $34.375 per share and promise to cooperate completely?

Icahn has served as a price setter before, in the takeover talks between BEA Systems and Oracle. After negotiations broke down between the two companies and Oracle walked away, Icahn, BEA's largest individual investor, hammered out a price with Oracle in the months that followed, resulting in a proposed price of $19.375 a share. Five days later, facing the threat that Icahn would go public with his support, BEA accepted the price.

Does lighting strike twice?

Apparently not. Yahoo issued this response to Icahn's proposal.

"His suggestion that we put out a price publicly to see if Microsoft will alter its stated position is ill-advised. As we have stated numerous times publicly and privately, we are open to any transaction including a sale to Microsoft if it is in the best interests of shareholders."

Yahoo closed up less than 1 percent to $26.44 a share, on a day when the broader markets took a hit. The Dow fell 394.64 points, or about 3 percent, while the Nasdaq dropped 75.38 points, also about 3 percent.