In a letter to Yahoo CEO Scott Thompson on Wednesday, Loeb blasted Yahoo for excluding shareholders from its board and accused the company of "making a mockery" of sound corporate governance principles.

Third Point, Yahoo's largest institutional shareholder with a 5.8 percent stake, has launched a proxy fight to appoint four directors to the Internet company's board of directors.

Yahoo's market capitalization is less than half of the $44.6 billion Microsoft Corp offered for the company in 2008, giving Third Point.

While some observers expected Yahoo and Third Point to reach a compromise that would avoid a drawn-out proxy fight, so far the two sides have failed to find common ground.

On Sunday, Yahoo announced the appointment of three new directors hand-picked by the company.

Yahoo also said its board had offered to propose one of Third Point's four nominees, Harry Wilson, and a second person acceptable to both Yahoo and Third Point to join the board in order to avoid a proxy fight.

But Yahoo said giving a board seat to Loeb would not be in the best interest of the company.

In his letter, Loeb took issue with Yahoo's reason for rejecting him. Loeb said he was told by Yahoo that the board felt his experience and knowledge would not be "additive" to the board and that as Yahoo's largest outside shareholder, he would be "conflicted" as a director.

"It is absurd to assert a 'conflict' that would render a board member unqualified based either on ownership or a sense of urgency to repair a company that has been - by your own admission - languishing for years," Loeb wrote.

Yahoo's revenue declined more than 20 percent last year, at a time when the businesses of Web rivals Google Inc and Facebook saw healthy growth.

Loeb argued that his interest in Yahoo was not solely focused on short-term results.

He noted that Third Point had advocated that Yahoo hold on to its 40 percent stake in Chinese Web giant Alibaba Group. He said the stake had more value than was generally understood, and Third Point had suggested that Yahoo retain the stake "unless it can get fair value."

Last month, negotiations collapsed between Yahoo, Alibaba and Japan's Softbank Corp involving a complex $17 billion tax-free asset swap. The deal would have seen Yahoo part with a big chunk of its stake in Alibaba.

In an emailed statement Yahoo said it remains open to hearing Third Point's ideas and working constructively with Third Point.

Shares of Yahoo finished Wednesday's regular trading session down 11 cents at $15.32.

Loeb said his firm remained willing to "engage further," but "will not deviate from our demand for badly needed shareholder representation."

(Reporting By Alexei Oreskovic; editing by John Wallace and Carol Bishopric)

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