Yahoo!'s drive to revive its business hit major roadblocks on Tuesday, as the company's talks to sell back most of its stakes in its Asian partners collapsed and a big investor unveiled plans to mount a board fight.

The developments raised questions about whether Yahoo! would be able to reverse years of missteps and make itself relevant in an Internet landscape now dominated by Google and Facebook. They also put additional pressure on the company's new chief executive, Scott Thompson, to provide a clear vision of what the new Yahoo! will look like.

While he has disclosed little during his first month on the job, Thompson, a former eBay executive, has told analysts that he may move Yahoo! away from dependence on online advertising for revenue.

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Yahoo! had been counting on financing that transformation, at least partly, by reaping billions of dollars from selling back most of its 40 per cent stake in Alibaba of China and all of its 35 per cent stake in Yahoo! Japan.

But the talks to put together a tax-free transaction ended late Monday after several days of negotiations in Hong Kong, according to people briefed on the matter, who were not authorised to speak publicly.

Hours after reports about the end of the talks emerged, Third Point, a hedge fund that is one of Yahoo!'s biggest shareholders, disclosed that it planned to challenge the company for four of the company's 11 board seats.

Third Point's proposed nominees are the firm's chief, Daniel S Loeb; Jeff Zucker, the former chief executive of NBC Universal; Harry J Wilson, a former Treasury Department official and a former hedge fund executive; and Michael J Wolf, the chief executive of the media consulting firm Activate.

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Shares of Yahoo! tumbled 4.7 per cent on Tuesday, beginning their fall after the website All Things D reported that the Asian talks had ended.

Why the talks between Yahoo! and Alibaba and Yahoo! Japan's majority owner, Softbank, fell apart is unclear. The two sides were weeks away from being able to announce a deal, and Yahoo! still needed formal assurances from the Internal Revenue Service that such a transaction would be tax-free.

At the close of negotiations on Monday, Alibaba's lead negotiator, Joe Tsai, told his Yahoo! counterpart, Timothy Morse, that the two sides were at an impasse and would most likely need to seek a different deal, one of the people briefed on the matter said.

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"It's a significant disappointment, but I don't think it's the end of the line," said Clay Moran, an analyst with the Benchmark Company. "This has been an ongoing saga and this is just another paragraph in a longer story."

Several issues appeared to hamstring the negotiations, including questions about breakup fees that would be payable if the tax-free deal fell apart. The value of Yahoo!'s stake in Alibaba, which stood at about $12 billion as of December, may have been another factor, one of these people added.

As recently as last week, both sides held out hope that Yahoo! and its Asian partners could reach an agreement. Yahoo!'s chairman, Roy J Bostock, confirmed the negotiations in a public letter to shareholders, though he cautioned that the talks could still fall apart.

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A number of prominent investors apparently had faith in the discussions as well. Hedge funds run by George Soros and David Einhorn took big stakes in Yahoo! in recent months, according to regulatory disclosures filed on Tuesday. Loeb's fund also increased its stake in the company, to 5.56 per cent from 5.15.

Yahoo! and Alibaba, which is led by Jack Ma, have tried to reach an agreement over Yahoo!'s stake several times before, including in late 2010.

It is possible that talks may resume. And Alibaba and Softbank plan to reach out to Yahoo! in hopes of reaching an alternative deal, including one that was taxable, another person said.

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Moran said that a taxable stake sale would bring in far less money for Yahoo!, though it would at least provide some additional capital to back Thompson's turnaround campaign.

That may not be enough to assuage Third Point, which criticised both Yahoo!'s board nominees and the company's strategic course.

Yahoo! named two longtime technology executives, Maynard Webb Jr and Alfred Amoroso, to its board last week and planned to search for at least two more. But Third Point argued that while the men held respectable credentials, they lacked necessary expertise in media and display advertising.

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"Shareholders deserve earnest representation and oversight as the Issuer confronts the critical investment and capital allocation decisions it expects to face in the next few months," Third Point wrote in its filing.

A Yahoo! spokesman said in a statement that the company had asked several major investors, including Third Point, for suggestions about board nominees last week.

"We have received constructive suggestions from several of our major shareholders and, therefore, it is especially disappointing that Loeb has chosen a potentially disruptive path," the spokesman said.

© 2012 The New York Times News Service