Jerry Yang, your worst nightmare has now come true. Carl Icahn has Steve Ballmer on speed dial.

In a letter to Yahoo shareholders, Icahn said he has spoken with Microsoft chief executive Steve Ballmer "frequently" during the past week about how Yahoo and Microsoft can consummate some kind of deal. Lest you think these were cursory exchanges, Icahn says that some of the conversations lasted as long as an hour.

It's been two months since Microsoft formally withdrew its offer for the search giant, but the flirtatious animosity between the two has continued unabated.

Now Icahn says Microsoft is still interested in buying all or part of Yahoo, but it won't entertain a deal unless the entire Yahoo board of directors is replaced. Presumably, Ballmer would expect the same of the new board as Icahn would: to immediately move forward with firing chief executive Jerry Yang and signing itself over to Microsoft.

Icahn says Ballmer's logic is simple. "If and when a transaction was consummated, Microsoft would be guaranteeing a great deal of capital at closing," he writes. "However, a transaction could take at least nine months and perhaps longer to obtain regulatory clearance in the U.S., Europe, and elsewhere. During that period, if the current board and management team of Yahoo mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk and a great deal could be lost."

Icahn is already staging a proxy fight with Yahoo to get his own board nominees elected at Yahoo's August 1 annual shareholder meeting.  

Yahoo investors were clearly thrilled with the latest development. Its share soared more than 10 percent in morning trading.

Full coverage of Microsoft's pursuit of Yahoo here.