Legg’s Miller: YHOO Hard Pressed For Alternatives; MSFT Needs To Up Bid

As Microsoft (NSDQ: MSFT) ponders its next move, one thing that will help it greatly is if it can get a buy-in from the big Yahoo (NSDQ: YHOO) shareholders. The biggest institutional shareholder at Yahoo is Legg Mason Capital Management, holder of about 80 million Yahoo shares. In a letter to investors of the Legg Mason Value Trust, which had a great track record of beating the S&P up until recent years, famed money manager Bill Miller what’s become somewhat conventional wisdom: Yahoo doesn’t have many alternatives, but Microsoft needs to raise its bid to get the deal done.

Excerpt: “YHOO’s Board has pledged to give the offer careful consideration and to do what they believe will deliver the most long-term value to YHOO owners. That is the right message, and we are waiting to hear their views as they develop. That said, we think it will be hard for YHOO to come up with alternatives that deliver more value than MSFT will ultimately be willing to pay… It has been reported that MSFT has been discussing a combination with YHOO for well over a year, and that it had been prepared to pay over $40 per share previously. We have no way of knowing whether those reports are accurate or not. Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal.”

Basically, it sounds like Miller will support the board if it wants to get a few more bucks on the deal, but if it tries to get fancy, by doing something completely different, he won’t be so pleased. Read the whole letter here.

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