Billionaire investor, Carl Icahn, has sent a letter to Yahoo's board announcing he is nominating 10 candidates to replace all incumbent directors at the company's shareholders meeting in July.

The move, rumoured since earlier this week, is intended to ultimately reignite merger negotiations between Yahoo and Microsoft.

In the letter, distributed this morning to the press and addressed to Yahoo's board chairman Roy Bostock, Icahn charges the board with acting irrationally and losing the faith of shareholders and Microsoft.

"It is quite obvious that Microsoft's bid of $US33 per share is a superior alternative to Yahoo's prospects on a standalone basis. I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts," Icahn wrote.

Microsoft declined to comment. Yahoo did not immediately respond to a request for comment.

Microsoft announced its $US44.6 billion bid for Yahoo on February 1, but walked away from the deal three months later, on May 3, saying the companies couldn't agree on a price. Microsoft's last offer was for $US33 per share, or about $US5 billion more than its original offer, but Yahoo wanted $37 per share.

Icahn said it is unconscionable that Yahoo's board didn't alllow shareholders the option to accept Microsoft's latest offer, which he pointed out represented a 72 percent premium over the closing price of Yahoo's stock -- $US19.18 per share -- on the day before the initial Microsoft offer.

"I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet," Icahn wrote.

Icahn decided to launch a proxy fight because in the past week "a number" of shareholders asked him to lead such an effort to oust the current board members and attempt to revive merger negotiations between Yahoo and Microsoft.

"I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies," he wrote.

Nonetheless, Microsoft officials have said repeatedly since withdrawing the offer that the company is no longer interested in acquiring Yahoo, something Icahn doesn't address in his letter. All along, Microsoft had indicated its readiness to launch a proxy fight to oust Yahoo's board and replace it with its own candidates, but eventually Microsoft decided against that option, saying that it wasn't interested in engaging in a hostile and potentially long process.

Over the past 10 days, Icahn has bought about 59 million shares and share-equivalents of Yahoo and assembled a 10-person slate to replace all Yahoo directors. He has also sought antitrust clearance from the Federal Trade Commission to buy about $2.5 billion worth of Yahoo stock.