Yahoo investor warms to Microsoft’s advances

Yahoo’s chances of escaping a takeover by Microsoft suffered a setback on Tuesday when one of its biggest shareholders endorsed the idea of a deal but at a higher price than the one on offer.

The comments by Bill Miller were the first indication that some of Yahoo’s main backers were ready to sell if Microsoft sweetened its offer.

With almost 9 per cent of the stock, Mr Miller’s investment firm, Legg Mason, is Yahoo’s second-largest institutional shareholder, behind Capital Research.

“We think this deal is a strategic imperative for Microsoft, and that Yahoo is in a tough spot if it wishes to remain independent,” Mr Miller wrote in a letter to investors. But, he added: “We think Microsoft will need to enhance its offer if it wants to complete a deal.”

The comments added to the belief on Wall Street that Yahoo and Microsoft were preparing for a drawn-out negotiation over how much Yahoo was worth. Yahoo has said the offer “substantially undervalues” the company and is looking at options.

Mr Miller said Yahoo’s board had sent the “right message” about wanting to do the best for its shareholders, but added: “We think it will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ... be willing to pay.”

His invitation to Microsoft to sweeten its offer came a day after the company reiterated that its first offer was “full and fair”. However, Microsoft has said it wants to complete a deal quickly, prompting many investors to assume it will raise its original offer to secure an agreed deal.

Mr Miller, referring to reports Microsoft was ready to pay $40 a share for Yahoo a year ago, said his analysis suggested a price “in the range of those reported numbers”. Microsoft’s bid currently values Yahoo at $28.91 a share.

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