Big Yahoo shareholder: There are few alternatives to Microsoft bid

Legg Mason--which owns 80 million shares of Yahoo, or about 6 percent of the company--said in its fourth quarter commentary that Yahoo will be hard-pressed to find alternatives to Microsoft's $44.6 billion bid. Nevertheless, the firm said Microsoft should raise its bid.

In a fourth quarter commentary, Bill Miller, fund manager of the Legg Mason Value Trust, said that he has met both with Microsoft CEO Steve Ballmer and Yahoo chief Jerry Yang. Miller's statement didn't exactly give Yahoo a vote of confidence with its plans to stay independent. When a firm owns 80 million shares both parties are likely to listen to it and meet in the middle.

Miller wrote:

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.

Miller then stated the obvious--the two parties need each other.

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.

So what's fair value? Miller puts the range somewhere between $31 and $40. He noted that Yahoo was trading at a four-year low. He added that Yahoo is a "uniquely valuable asset" and that Microsoft will "do what it takes to acquire it."