The billionaire investor said last week in a public letter to Yahoo chairman Roy Bostock that he would replace chief executive Jerry Yang and look to a deal which would value Yahoo's stock at a minimum of US$33 per share.
Icahn said that he would aim even higher for a possible deal with Microsoft.
The investor suggested to Bostock that Yahoo should sell to Microsoft at US$34.375 per share, realising US$49.5 billion for the company.
Icahn also vowed to remove the so-called "poison pill" severance plan put forward by Yahoo. The company estimated that any acquisition by Microsoft would lead to US$2.4 billion in severance payments for exiting employees.
"You neglected to mention that the true cost to an acquirer may be even higher as the perverse change in control severance incentives may diminish the work effort of Yahoo employees," Icahn told Bostock.
"In case you do not understand the plan, in addition to the US$2.4 billion of severance expenses, I believe the plan will negatively impact employee behaviour and degrade the ability of an acquirer to successfully integrate the acquisition."
Should the deal with Microsoft fall through, Icahn said that he would seek out a deal with Google under a new board and chief executive.
Yahoo is in the process of completing a plan to outsource its search advertising operations to Google. The deal was cited by Microsoft as a major reason for ending its pursuit of Yahoo.
Yahoo issued a short public statement in response to Icahn's letter, reaffirming its efforts to fight the takeover and taking a shot at the investor.
"Leaving aside Mr Icahn's inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo," the letter said.
"We believe that Mr Icahn's suggestion that we cancel our retention plan would have a destabilising impact on Yahoo and would clearly not be in the best interests of our shareholders."
Icahn aims to sell Yahoo for US$49.5 billion
Carl Icahn has promised to secure almost US$50 billion for Yahoo if his plans to oust the web giant's board are successful..
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