Settlement talks between Carl Icahn and Time Warner Inc. (TWX) have stumbled and the billionaire investor is expected to proceed with a proxy battle to nominate five board members, a source familiar with the talks said on Friday.

While talks could be revived at the last minute up to a Sunday deadline, a press release announcing that the proxy battle will continue has been drafted and approved by the Icahn camp, this source said.

However, another source disputed that appraisal, saying a settlement is still possible, reflecting the volatile nature of the on-again, off-again talks between Icahn and Time Warner boss Richard Parsons.

Icahn, who controls an investors group that owns about 3.3 percent of Time Warner, and Time Warner executives have been engaged in discussions this week to end Icahn's plan to split apart the world's largest media company.

A third source critical of Icahn's plan said Icahn's softened stance is a "face saving" move after he failed to garner significant investor support.

The nominations could be announced as early as Friday. Icahn has until Sunday to file with the U.S. Securities and Exchange Commission.

Icahn's office and Time Warner declined to comment.

This week, Icahn, who had earlier planned to nominate a full slate of 14 board members and break up the company into four parts, cut the slate down to five, which now include executives known for their corporate governance experience.

Time Warner investors were ready to agitate for change, but were unwilling to back a plan that would completely replace the existing board of directors group, the source said.

Although Icahn is proceeding with a more conservative plan, Time Warner and Icahn could settle their differences at any time before its May annual shareholders meeting.

Both sides have a vested interest in negotiating a settlement. Time Warner is unlikely to savor the prospect of having five dissident members of its board. Similarly, a settlement could allow Icahn to back off from an expensive and time consuming proxy campaign.

Time Warner shares edged down 26 cents, or 1.45 percent, at $17.71 on the New York Stock Exchange at mid-afternoon.