By Aaron Task in Investing, Internet, Newsmakers, Venture Capital, M and A, IPOs

Carl Icahn is going to move forward with a full proxy slate to replace Yahoo's board of directors, Reuters reports.

"Icahn, who has amassed a large stake in the Internet company, has lined up at least 12 potential board candidates," Reuters reports.

After Microsoft withdrew its $33-a-share offer for Yahoo on Saturday, the question was how far Yahoo’s stock would drop. On Monday morning, the markets gave an initial answer: plenty.

Shortly after 10 a.m., Yahoo’s shares were off nearly 20%, at $23.92, down from the close of $28.67 on Friday — a day when the companies were said to be escalating their talks on a merger.

Yahoo's first-quarter earnings more than tripled, helped by rising marketing services revenue, to beat analyst estimates.

Yahoo reported income of $542.2 million, or 37 cents per share, compared with $142.4 million, or 10 cents per share, in the year-ago quarter. On an adjusted basis, Yahoo earned 11 cents per share.

Google is doing everything possible to make Microsofts job hard in this takeover. Google has agreed to help out Yahoo by participating in an unusual test that will gauge how much more advertising Google can sell for Yahoo!

The two-week experiment will be limited to ads posted alongside a small percentage of Yahoo's online search results in the United States.

In light of recent developments, Microsoft Corp.'s (MSFT) acquisition of Yahoo! Inc. (YHOO) is all but inevitabie, Citigroup Capital Markets analyst Mark Mahaney wrote in a research note.

Wall Street advanced Monday following reports of potential corporate deals -- including news that Washington Mutual might get a $5 billion investment from private equity firms.

According to The Wall Street Journal, News Corp. and Yahoo are in talks about combining MySpace and other News Corp.-owned online properties with Yahoo, in a move aimed at fending off Microsoft's takeover bid.

Earlier this morning, TechCrunch and Silicon Alley Insider weighed in.

Peter Kafka of Alley Insider breaks out the details:

Yahoo's Board of Directors will reject Microsoft's $31/share unsolicited bid according to a Wall Street Journal report citing unnamed sources. The decision is based on the belief the bid, which totals about $44.6 billion, "massively undervalues" Yahoo. The source said Yahoo is unlikely to consider offer less than $40/share, upping the purchase price by $12 billion.

Yahoo lost 7.6%, or $1.59, to $19.22 on the Nasdaq Stock Market. The online search engine's fourth-quarter profit dropped by 23% from the same period a year ago, while revenue rose 8%. The company will cut 1,000 jobs next month.

Citigroup, Oppenheimer and Pacific Crest Securities all removed their "buy" ratings from Yahoo, downgrading the shares to "neutral" calls.

Analysts at JP Morgan have released their 2008 investment guide for Internet stocks and say following outperformance in 2007 (Internet HOLDRs (HHH) +14% vs. S&P 500 +5%), they expect more of the same this year. Although revenue growth is seen decelerating to 21.2% from 25.6% last year, the analysts expect EPS growth of 34%, compared to only 8% for the S&P 500.