Little Microsoft sweetener might win Yahoo

By Svea Herbst-Bayliss

NEW YORK (Reuters) - Yahoo Inc's second-biggest shareholder does not like Microsoft Corp's ultimatum to the Web company to negotiate or face a lower bid, but he may not want much more than the software company has offered.

Bill Miller of U.S. asset manager Legg Mason Inc said he will support Yahoo management's plan to remain independent if Microsoft lowers its bid for Yahoo as its Chief Executive Steve Ballmer threatened to do in a weekend letter.

But the star money manager, who oversees the Legg Mason division that holds roughly 7 percent of Yahoo shares, said in the Wall Street Journal that Microsoft could have a "big impact psychologically" on Yahoo shareholders with a sweeter bid even if it is only "up a buck."

The move appeared to soften a stance by the most prominent investor backing the Yahoo board's hard line that Microsoft needed to increase its offer substantially.

Miller has insisted that fair value for Yahoo is around $40 per share, but his new comments come at a time when Yahoo shareholders seem resigned to selling to Microsoft.

"Yahoo is unlikely to fetch $35 to $40. It is still possible we will get a more attractive price" than Microsoft's offer, said Cowen and Co analyst Jim Friedland.

He cautioned that the risks of Microsoft walking away outweigh any potential higher offer, but also agreed that Miller's angry tone could attract backers, especially after Yahoo said on Wednesday it would test using Google Inc's search.

"Not only do we have a likely Google deal, but with Bill Miller demanding a higher offer, you could also start to see other Yahoo shareholders start to line up behind him," Friedland said.