The billionaire investor said Yahoo had made much of the 24-hour deadline but did not mention that it was offered more time if it was willing to postpone the August 1 annual meeting.

Icahn also said that on a Friday conference call with Yahoo officials and Microsoft Chief Executive Steve Ballmer to discuss the latest offer, Yahoo was less interested in the deal than they were in who would be running the company.

"Finally, Steve Ballmer suggested that we not spend the rest of Friday afternoon on corporate governance. ’First, tell us if you like the deal,’ he said," according to Icahn.

Yahoo shares fell 4.9 percent to $22.42, while Microsoft shares were unchanged at $25.25, both on Nasdaq.

The latest proposal is the latest chapter in a six-month saga that started with Yahoo rejecting Microsoft’s $31-per-share buyout offer. Microsoft then raised its offer to $33 per share, or $47.5 billion, before pulling that bid in May.

Icahn, who owns about 5 percent of Yahoo and is working with Microsoft, reiterated earlier statements that Ballmer was no longer willing to negotiate with Yahoo’s current board. Microsoft has said it would be willing to resume talks with a new board on buying part or all of Yahoo.

"We believe that NOW IS THE TIME TO ENTER INTO A SIGNIFICANT TRANSACTION WITH MICROSOFT," Icahn wrote in a letter to Yahoo shareholders, which included the all-capitalized passages for emphasis.

Icahn has nominated a slate of nine directors to replace Yahoo’s board and oust CEO Jerry Yang on August 1.

Yang would remain at the company as "Chief Yahoo," according to Icahn, who also said he was open to discussing keeping a number of the current board members.

Yahoo Chairman Roy Bostock on Saturday called the alliance between Icahn and Microsoft to be "odd and opportunistic." Yahoo also said the proposal would preclude the potential sale of the whole company at a fair price.

Icahn said Microsoft would guarantee Yahoo at least $2.3 billion in annual search revenue for five years, as long as Yahoo continued to supply their current page views and affiliate traffic.

After that, Microsoft could extend the agreement for five years with a $3 billion in guaranteed annual revenue, or Yahoo could extend for 5 years in which Microsoft would guarantee $1.6 billion in annual revenue.

The revenue guarantees suggested by Microsoft were conditional, subject to reduction, and were "well below" the search revenue that Yahoo is expected to generate on its own and with Google, Yahoo said Saturday.

(Reporting by Kenneth Li; Editing by Lisa Von Ahn/Jeffrey Benkoe)