The Wall Street Journal reports this morning that Yahoo’s second largest shareholder, investment firm Legg Mason, characterized Microsoft’s recent ultimatum letter as a tactical “blunder” and said it would support Yahoo’s independence if Microsoft maintained or lowered its current offer.
The article also reports, however, that an informal survey of 20 institutional Yahoo shareholders by the investment firm Piper Jaffray found “the majority suggest they favor the current deal to no deal.” But the Legg Mason statements are significant nonetheless.
The Microsoft gambit appears to be setting the stage for a hostile takeover, in which it would seek to nominate a more sympathetic slate of board candidates to replace the existing board, which has twice rebuffed Microsoft’s offer as too low. The support of shareholders would be critical for either side in such a battle.
The Legg Mason position, presented by portfolio manager Bill Miller, seeks a sweetened offer from Microsoft:
Mr. Miller said that the current value of Microsoft’s offer — $29.17 per share as of 4 p.m. Nasdaq market trading Tuesday — “is not something I’m too excited about.” He said the original $31-per-share value of Microsoft’s offer was also too low because it was an initial bid, and he didn’t recall many unfriendly takeovers where the final price was the opening bid.
Legg Mason, according to the WSJ, doesn’t own Microsoft, unlike Capital Research & Management Co., which does. The latter is Yahoo’s largest institutional shareholder and doesn’t want to see the value of Microsoft shares fall further even as it seeks value for its Yahoo shares.
Legg Mason’s public statements are almost certainly an effort to pressure Microsoft to reconsider its position and raise its bid.