by , 12:40 PM EDT, June 12th, 2008

Billionaire investor Carl Icahn's plan to take over Yahoo in a proxy battle and force a Microsoft buyout may be souring. Investors aren't as interested in the plan as they used to be, and dropping stock prices mean Mr. Icahn may lose his cash, too, according to Silicon Alley Insider.

Mr. Icahn launched a proxy battle to take over the Yahoo board and offer the Internet search company to Microsoft after an unsolicited buyout offer from Microsoft fell through. Mr. Icahn insisted that buying Yahoo was in the best interests of both companies, but Yahoo contended that the offer was undervalued and a bad move for investors.

Yahoo also created a new "retention plan" should another company take over. The plan awards employees a large severance package if they are fired without cause, or quit for "good reason," following a buyout. Mr. Icahn called the move a "poison pill," and investors think it could result in an employee exodus -- which would be bad news for Yahoo, Microsoft, and both company's stock value.

Investors are also concerned that Mr. Icahn appears to have only one plan in place if his proxy board is voted in: sell Yahoo to Microsoft.

Assuming Microsoft is even interested in returning to the negotiating table, it would likely make an offer around US$28 a share, below the $33 it offered earlier this year. If Microsoft isn't interested in a deal, and Mr. Icahn can't swing a deal with Google, Yahoo's stock could potentially drop down to $20 -- well below the $25 a share options he is holding now.

With more investors losing faith in the Yahoo proxy takeover plan and stock prices dropping, Mr. Icahn's gamble may leave him on the losing end of the deal.