"Thompson has got to make his case. And now he has to do it persuasively because there's another guy who is going to make his case persuasively," said Lawrence Haverty, a fund manager with GAMCO Investors, which owns Yahoo shares.

Thompson is finishing plans to overhaul Yahoo's operations, the first step in an ambitious effort to pull off one of the Internet industry's biggest comebacks. But Third Point has its own ideas about what to do with the once-dominant, now-slumbering Internet icon.

Armed with a slate of four alternative candidates for the Yahoo board of directors, Third Point officially launched a campaign on Wednesday to have a formal role at Yahoo.

For Yahoo shareholders, the central question is whether they believe Thompson can create more value for them than the company's current $15 to $16 stock price or if they should cut their losses and push for a sale of Yahoo's various assets, said Haverty, who declined to comment on how his firm will vote in the proxy contest.

Third Point, which ranks as Yahoo's largest institutional shareholder with a 5.8 percent stake, has not yet articulated its intentions, except to say that it believes the company needs to change.

Third Point has accused Yahoo of being dismissive of its input and described the current board as "sorely in need" of restructuring capabilities and media strategies.

In addition to himself, Loeb has nominated former NBC Universal President Jeff Zucker, long-time media consultant Michael Wolf, and Harry Wilson, a turnaround specialist, for election to Yahoo's board.

Yahoo's market capitalization currently stands at less than half of the $44.6 billion Microsoft offered for it in 2008, giving Third Point a rich vein of investor discontent to tap.

"If gets through the annual meeting and successfully navigates these issues then he's going to be looked at as a more credible and effective CEO," said Jim Post, a professor at Boston University School of Management who specializes in corporate governance. "If he doesn't, he's going to be seen as a weaker CEO. And if he's seen as a weaker CEO, that's like blood in the water," said Post.

100 DAYS

Thompson, a former president of PayPal and Yahoo's fourth CEO in five years, is not wasting time shaking things up at Yahoo.

According to one Yahoo insider, the company is preparing for a massive reorganization that could come within weeks and could result in layoffs of several thousand of its roughly 13,000 employees.

Rather than simply cutting jobs, the Yahoo insider said, the reorganization could eliminate entire business lines, allowing Yahoo to concentrate on its most promising opportunities. As it stands now, this person said, Yahoo is a jumble of media businesses and technology products that have saddled it with huge costs and little, if any, growth.

While Yahoo has stagnated, Web rivals such as Google and Facebook are increasing revenue and market share. Last year, Google's revenue rose 29 percent to $37.9 billion while Facebook's revenue increased 88 percent to $3.7 billion. By contrast, Yahoo's revenue declined more than 20 percent to $4.98 billion last year.

"They have to figure out how to better monetize the site and how to maintain users on the site. They've got a lot of work to do because they're becoming less and less relevant every day," said Brian Pitz, an analyst at UBS, referring to Yahoo.

The reorganization would represent the third splashy headline Thompson has generated in his first 100 days on the job, alongside the company's decision to sue Facebook for patent infringement and the end of negotiations on a complex deal to spin off Yahoo's Asian assets.

Yahoo owns roughly 40 percent of Chinese Internet giant Alibaba Group and 35 percent of Yahoo Japan.

The Facebook lawsuit sparked outrage among Silicon Valley's tech crowd, as critics accused Yahoo of resorting to crass legal tactics instead of developing innovative products. When news surfaced last month that talks between Yahoo, Alibaba Group and Softbank relating to a $17 billion tax-free asset swap had fallen apart, investors promptly sent the company's shares down nearly 6 percent.

Thompson, a native of Boston's south shore whose thick accents stands out in Silicon Valley, recently met with representatives from Alibaba and Softbank, according to a person familiar with the situation, though it's unclear whether the meeting would revive negotiations.

DEAL OR NO DEAL?

Sour feelings among investors about Yahoo's failure to spin off its Asian assets could provide ammunition for Third Point to promote its alternative vision of the company's future.

"If Yahoo is able to come to an agreement soon with Alibaba that's good for shareholders, that will be helpful," said Ryan Jacob, chairman and chief investment officer of Jacob Funds, which owns Yahoo shares.

"If they can't, you have to assume that Third Point will have some degree of success in terms of nominating their own slate," he added, noting that he was currently leaning toward voting for Third Point's candidates.

Third Point's four directors would not have a majority on Yahoo's 11-member board. Still, they could represent a voice "that can't be ignored" on key matters and gain seats on important board committees, said Boston University's Post.

At the top of Third Point's list, Post reckoned, is likely the five-member Transactions and Strategic Planning committee, which oversaw the negotiations with Alibaba and Softbank and is currently chaired by Intuit CEO Brad Smith.

A representative for Yahoo, which has said that four of its current board members will not stand for re-election this year, declined to comment beyond a statement that said a committee of the board has reviewed a wide range of candidates, including Third Point's, and will make its own recommendations shortly. Third Point did not return a request for comment.

Third Point's campaign to install its directors on the board may not come down to a dramatic vote at the annual meeting, expected to be held some time in June.

"These things do get negotiated," said Stephen Diamond, a professor at Santa Clara University School of Law who teaches classes on business organizations and corporate governance. He cited a November deal by Hewlett Packard Co that gave activist shareholder Ralph Whit worth a seat on the company's board of directors, as well as seats on two board committees.

Any deal between Yahoo and Third Point would likely include a condition that the new directors support the CEO for the foreseeable future, said Diamond.

"The current board will not agree to simply place these dissidents on the slate without some agreement," he said.

Some Yahoo investors do want to give Thompson a chance, so that kind of an arrangement might be the best outcome for all sides.

"I like Scott Thompson, I think he's making the right moves," said Adam Seessel, director of research at Martin Capital Management, which owns Yahoo shares. But, he added, "it's always good to have a shareholder looking over his shoulder."

(Reporting By Alexei Oreskovic; Editing by Peter Lauria and Steve Orlofsky)

• A Permanent Economic Emergency