Legg-Mason: Microsoft - Boost Your Offer, Yahoo! - Take It

Tuesday the Legg Mason Value Trust issued its Investment Commentary on Q4 2007. The commentary was written by Bill Miller, fund manager of the Legg Mason Value Trust, and in the press release, he gave his opinions on any possible deal. Legg Mason Capital Management (LMCM) owns about 80 million shares of Yahoo!, or 6% - and is the second largest shareholder. When LMCM talks, you'd expect these companies to listen.

Miller indicated that LMCM has had discussions with both CEOs since the Microsoft offer was made public. In the press release, which also addressed Countrywide and bad Legg-Mason years in 2006 and 2007, he seemed to make the following key points:

• Microsoft needs to raise its offer.
• Yahoo needs to accept it.

Here's what he said (emphasis mine):

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.

We think this deal is a strategic imperative for MSFT, and that YHOO is in a tough spot if it wishes to remain independent. 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.

That said, Legg-Mason thinks Microsoft will do whatever it needs to do to finalize the deal.

Me? I think so too - but Yang reportedly has no love lost for Microsoft, and is not anxious to see the layoffs that would likely result from such an acquisition.