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First major institutional investor backs Yahoo board over Icahn

July 18, 2008 | 11:16 am

Legg Mason's Bill Miller, who controls 4.4% of the stock in Yahoo, today said he would vote to keep the current board in place instead of backing a dissident slate nominated by investor-agitator Carl Icahn.

The public statement is the first by a major institutional investor supporting Yahoo management, and it's especially important because Miller has wavered in the past over how to vote. (T. Boone Pickens and other shareholders, none as large as Legg Mason, endorsed Icahn earlier.)

Legg Mason's Bill Miller"We have met with representatives of the current board and management, including founder Jerry Yang, several times," Miller wrote. "We believe the current board acted with care and diligence when evaluating Microsoft's offers. We believe the board is independent and focused on value creation for long-term shareholders."

Miller (pictured) also took aim at a major argument put forward by the awkward alliance between Icahn, who badly wants Yahoo to sell to Microsoft, and Microsoft, which badly wants to buy Yahoo as cheaply as possible.

Microsoft said last week it would negotiate only with a new board (although it then proceeded to negotiate with the old board).

But some investors reason -- and Yahoo has argued -- that an Icahn-dominated board would have little leverage to negotiate the best terms with Microsoft, since Icahn has said little about a Plan B for the Internet company.

Miller agreed today that Microsoft shouldn't get to dictate who is on the other side of the bargaining table.

"If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public. If Yahoo shareholders support it, I am confident the board of Yahoo will accept it," Miller wrote.

Finally, Miller called the proxy fight "disruptive" and urged Yahoo and Icahn to negotiate a deal on the board's composition. Other shareholders have been floating that idea in private talks.

A joint board might make sure that all points of view are represented -- but it would also take some of the pressure off Yahoo's current board, which might still decide that doing a deal with Microsoft before the Aug. 1 annual meeting is the surest way to avoid an insurrection.

Microsoft and Icahn didn't immediately return calls seeking comment.

-- Joseph Menn

Photo credit: Andrew Serban / Bloomberg News

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