Yahoo!'s second biggest shareholder warms to Microsoft bid

Microsoft's $44.6bn (£23bn) bid for Yahoo! has moved a small step closer to being realised, after Yahoo!'s second biggest shareholder endorsed the idea of a deal, but at a higher price than the one on offer.

In a letter to investors, Bill Miller, an asset manager at Legg Mason, which owns almost 7% of Yahoo!'s shares, said a fair price is nearer $40 a share. Microsoft has offered about $31 a share in cash and stocks.

In a quarterly letter to investors of the firm's flagship Value Trust Fund, Miller said: "We think Microsoft will need to enhance its offer if it wants to complete a deal.

"We think it will be hard for Yahoo! to come up with alternatives that deliver more value than MSFT will ultimately be willing to pay."

The comments will add substance to the widely held view by analysts on Wall Street that Yahoo! and Microsoft are preparing for a drawn out negotiation over how much Yahoo! is worth.

Yahoo rejected Microsoft's approach earlier this week, saying the offer "substantially undervalues" the company.

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