Spurred by widespread criticism about how Yahoo's board responded to Microsoft's sweetened takeover offer of $47.5 billion, an activist shareholder is trying to recruit an alternate slate of directors to present at Yahoo's annual meeting July 3.

"We are hoping to turn that (meeting) into 'Independence Day' for Yahoo's shareholders," said Eric Jackson, president of Ironfire Capital.

Yahoo announced in March it was postponing the annual meeting, hoping to squelch Microsoft's threatened attempt to remove the board if the software maker decided to pursue a hostile buyout of the embattled Internet pioneer.

The specter of a hostile takeover evaporated over the weekend when Microsoft Chief Executive Steve Ballmer withdrew a 3-month-old offer after concluding he had reached an impasse with Yahoo's board over a mutually acceptable sales price.

Ballmer had orally offered to pay $33 per share, or $47.5 billion, up from an initial bid valued at $44.6 billion, or $31 per share. At the time the negotiations collapsed, the value of Microsoft's original offer had fallen to $42.3 billion, or $29.40 per share, because half the deal was supposed to be financed with Microsoft's declining stock.

Yahoo's board wanted $37 per share - a price that the company's stock hasn't reached in more than two years.

"It's hard to believe the board could let this happen," Jackson said. "I think they completely misconstrued the situation and thought, 'Microsoft is rich, so let's soak them.' They were bluffing all the way and got caught."

Yahoo declined comment Tuesday. Yahoo Chairman Roy Bostock and Chief Executive Jerry Yang - a board member - have staunchly defended their handling of the Microsoft negotiations. Both have said the board wasn't drawing a line in the sand with the $37-per-share demand.

"We engaged with them and we wanted to find a way to get something done. But they walked," Yang said in an interview Monday.

Investors are apparently still holding out hope that Yang and Ballmer can set aside their differences and perhaps renew negotiations, even though Microsoft has been signaling it will explore other ways to improve its unprofitable Internet operations.

The possibility of revived talks helped lift Yahoo shares by $1.35, or 5.5 percent, to finish Tuesday at $25.72. That left Yahoo's market value more than $10 billion below Ballmer's last offer.

Yahoo announced the date of its annual meeting late Monday, giving Jackson until May 15 to submit an alternate slate of directors. Without providing specifics, Jackson said he has already approached several "well-known and credible" candidates well-versed in the problems facing Yahoo.

Even if he doesn't assemble an alternate slate of candidates, Jackson vowed to spearhead a campaign urging shareholders to vote against the re-election of Yahoo's current directors.

Any director who is opposed by more than half of Yahoo's shareholders is supposed to submit a letter of resignation under the company's rules. But Yahoo doesn't necessarily have to accept the resignation.

Although he only owns 96 Yahoo shares, a sliver of the roughly 1.4 billion outstanding, Jackson has experience rallying stockholders around a common cause.

Jackson spent several months leading up to last year's annual meeting organizing an online protest against Yahoo's Terry Semel, the CEO at the time. The crusade culminated at the annual meeting, where Jackson confronted Semel and asked the CEO if he still had enough "fire in his belly" to do his job. Semel resigned six days later and was replaced by Yang.

Jackson's latest revolt may find two powerful allies in Yahoo's two largest shareholders, Capital Research Global Investors and Legg Mason, whose portfolio managers have both publicly expressed their disappointment with the Yahoo board's demand for $37 per share.

Already, Yahoo stockholders with about 3 million shares have pledged to support Jackson's attempt to replace the board.