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Yahoo executives are betting the addition of Interclick makes it a stronger company or a more attractive acquisition target, Lee reasons. But, he said, "It is odd Yahoo decided its best option was to buy rather than to build on top of what" it already has.

Potential bidders

Yet the saber-rattling by private-equity firms and other buyout shops storming the gates of Yahoo is building pressure on management. The company needs to move fast to prove its relevance or be sold at a bargain-basement discount. The problem: Yahoo isn't growing like it used to. And its prospects in the face of competition aren't great, either. Still, it's profitable and boasts a massive audience of 700 million users worldwide.

Much of the problem is leadership. Yahoo still doesn't have a permanent CEO. And then-CEO Yang's resistance to Microsoft's offer to buy the company in 2008 for $47.5 billion -- double its current market value -- has landed him in the doghouse. Yahoo's board ultimately rejected the bid.

Should Yahoo opt to sell, a long list of prospective suitors possibly await. Even Google's name pops up, although Alibaba Group, a Chinese Internet company partially owned by Yahoo, is the only bidder that has publicly declared its interest in mounting a takeover attempt.

Google and Yahoo declined to comment.

Others reported to be mulling an offer include Silicon Valley venture-capital firm Andreessen Horowitz and buyout firms KKR, the Blackstone Group and Silver Lake Partners.

Microsoft has been reported to be weighing whether to help finance a Silver Lake bid.

It would be folly for Microsoft, sitting on a "heap of cash" (more than $40 billion) to make another go at Yahoo, cautions independent analyst Damon Vickers. "These are two companies slowly fading away," he says. "If they merge, it would be like two cinder blocks sinking in water."

Despite its well-documented problems -- three CEOs in a few years, for starters -- Yahoo's audience of some 700 million people worldwide and its stakes in prized assets such as Alibaba and Yahoo Japan make it an attractive takeover candidate, says David Hallerman, an analyst at eMarketer.

By acquiring Yahoo, Google or Microsoft could eliminate a competitor and pick up valuable pieces from Yahoo in the process, says Carl Tobias, a professor at the University of Richmond's School of Law. But Google and Microsoft face antitrust scrutiny if they pursue Yahoo, he adds.

"Is there value there? Absolutely," says analyst Gartenberg. "Yahoo Sports. Fantasy stuff. Flickr. Messenger. Yahoo Mail."

The takeover talk has helped lift Yahoo's stock price by more than 20% since Bartz's departure. Yahoo's shares rose nearly 3%, to close at $15.69 Monday.

Still, it is unclear if Yahoo will put itself up for sale as it explores ways to appease shareholders. Many stockholders are frustrated with the company's declining revenue at a time when the overall Internet advertising market is growing.

Yahoo's profit and revenue slipped year-over-year during its third quarter. Profit was $293 million, or 23 cents a share, compared with $396 million, or 29 cents a share, in the year-ago period. Revenue was $1.07 billion, vs. $1.12 billion a year ago, but in line with Wall Street expectations.

What the future holds

Yahoo's travails aren't likely to go away as it increasingly faces competitive pressure from Facebook and Google for users and advertisers.

Searches on Yahoo, for instance, were up only 1% in its third quarter, while search page views slumped 3 percent, the company said.

That, in no small part, has hurt Yahoo's online advertising business. While Yahoo's annual revenue from display ads is expected to improve 15% to $1.9 billion in the U.S. in 2012, Facebook's is expected to soar 45 percent to $2.9 billion and Google's 58 percent to $1.8 billion, according to eMarketer. (Google's overall revenue is far higher, and both Google and Facebook dwarf Yahoo in terms of market value.)

Yahoo said it agreed to extend the revenue-per-search guarantee in its partnership with Microsoft through March 2013.

Earlier this year, however, Yahoo admitted the two-year deal was taking longer than anticipated to pay off because of technical imperfections in the search-advertising system.

"A few years ago, a Yahoo homepage takeover was the online equivalent of a Super Bowl commercial," says Adam Hanft, CEO of Hanft Projects, which has helped market consumer brands such as Barnes & Noble and Travelocity. "The shift in consumer behavior since then has been profound."

Yahoo is being squeezed by Google's dominance in search and Facebook's in delivering targeted advertising to its 800 million members. "With these two monster competitors offering scale, relevance and the power of the social graph -- and with AOL's new Devil ad unit slowly gaining traction -- the room for Yahoo to grow dramatically is narrowing," Hanft says.

In that Sept. 23 memo to employees, Yang, Filo and Bostock acknowledge that Yahoo needs to "accelerate innovation, reignite inspiration, and give our users what they want now -- great content that is engaging and easy to use on any device and provide an experience in which they can participate and contribute."

Such strategy dovetails with the advice of several industry observers, including Don Dodge, a former Microsoft executive who closely follows Yahoo. He suggests Yahoo hire a "product-driven CEO" who focuses on customers and eschews business deals; hold onto valuable equity holdings in Yahoo Japan and Baidu; and concentrate on Yahoo strongholds, such as Yahoo Sports and Yahoo Finance.

"The future is clearly mobile, local/location, social and games," Dodge says. "Yahoo Games could be a huge asset if you put more emphasis on it." The difficult tradeoff, he says, is cutting headcount in other areas to free up resources.