All Things Digital

Finally, the rumble has moved from letters to numbers, as a major Yahoo shareholder, legendary portfolio manager Bill Miller of Legg Mason (LM), has publicly backed the Internet giant in its takeover tussle with Microsoft.

And exactly what does Miller–whose fund only holds Yahoo (YHOO) shares and not those of Microsoft (MSFT) too, as do many big shareholders of Yahoo–want?

Three guesses and the first two don’t count!

More money, of course, and no more thuggish threatening from Microsoft to drop the price.

In an interview with The Wall Street Journal’s most excellent Kevin Delaney published today, Miller (pictured here in a lovely dot-drawing) said Microsoft had “blundered” by threatening in a letter the software giant sent to Yahoo over the weekend to go hostile and perhaps even drop the price of the deal.

“The problem is Microsoft blundered with the letter this weekend,” Miller said to the Journal. “Telling the shareholders you’re going to take something away from them is not a way to get their support.”

If Microsoft does that, said Miller, Legg Mason–which owns about 7% of Yahoo–would back Yahoo’s efforts to stay independent and even buy more Yahoo shares, as they presumably dropped like a falling knife if Microsoft were to pull its bid.

The bigger question is whether anyone else will follow Miller, such as Capital Research & Management, which owns 11.6% of Yahoo (along with 5.6% of Microsoft), in publicly supporting Yahoo (or, in fact, Microsoft).

I doubt it, unless things got really ugly in a true proxy battle.

But BoomTown’s post last week that many significant shareholders indicated a preference to back the Microsoft deal was borne out by a Piper Jaffray (PJC) research note released yesterday, which the Journal cited, that surveyed 20 institutional Yahoo investors and concluded that “the majority suggest they favor the current deal to no deal.”

And, to me, the most interesting part of Delaney’s piece was a throwaway line at the bottom, in which Miller “dismissed the idea that Yahoo can find an alternative deal that would be palatable to shareholders.”

Since Yahoo is still ferreting away with execs from Time Warner (TWX) and its AOL unit–you know, that rat’s-nest of a deal in which AOL, Time Warner investment dollars and, oh, some old fishing rod of former exec Don Logan’s is thrown into Yahoo for a 20% stake, along with perhaps a dollop of Google (GOOG) involvement for added complexity–the lack of support from Miller for a more complicated scheme than the cleaner Microsoft deal is, to my mind, much more significant.

In any case, Miller’s support of Yahoo is absolutely no surprise given how close Miller has been to Yahoo over the years, especially due to the lavish attention and care Yahoo President Sue Decker, a former stock analyst, in fact, has given to Wall Street fund managers in general.

Still, as the major Yahoo-only shareholder, Miller has weight, although his higher-price plea is not a new tune.

In fact, when the bid was first revealed, Miller urged a higher price and cannot be too happy about the current value of the original unsolicited cash-and-stock offer of $31 a share. It is now worth about $29 due to a drop in the value of Microsoft’s shares.

And given that a higher price would surely bolster Legg’s performance, Miller reiterated his interest in more dollars from the Microsoft kitty in his interview with Delaney, even offering negotiating tips to Microsoft CEO Steve Ballmer.

“If Microsoft raises the offer, the pressure shifts very quickly to Yahoo to negotiate,” he said. “To me, bumping the number up a buck [from $31 a share], that would have a big impact psychologically on shareholders.”

Only one single dollar and shareholders get shiny and happy!? Message received, Steve Ballmer?

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