From: Reuters
Published February 12, 2008 02:05 PM

Legg's Miller says Microsoft should boost Yahoo bid

BOSTON (Reuters) - Bill Miller, star stock picker at U.S. asset manager Legg Mason Inc <LM.N> which is Yahoo Inc's <YHOO.O> second biggest shareholder, said Microsoft Corp <MSFT.O> will have to raise its $41.6 billion takeover offer for the Internet firm.

"We think MSFT (Microsoft) will need to enhance its offer if it wants to complete a deal," Miller said in his quarterly letter to investors, which was released on Tuesday. He estimated the fair value for Yahoo was around $40.

The letter is dated February 10, a day before Yahoo rejected Microsoft's offer as too low.

After Microsoft unveiled its original bid valued at $31 a share, Miller said he and his team met with Microsoft Chief Executive Steve Ballmer and spoke with Yahoo CEO Jerry Yang.


But Miller, famous for steering the $16.5 billion Value Trust <LMVTX.O> to 15 straight years of outperformance versus the Standard & Poor's 500 index <.SPX> till 2006, said Yahoo would struggle as an independent company and find it hard to create more value than a deal with Microsoft would fetch.

"We think it will be hard for YHOO (Yahoo) to come up with alternatives that deliver more value than MSFT will ultimately be willing to pay," Miller said.

As of December 31, Miller's Value Trust fund owned $564 million worth of Yahoo shares, its ninth biggest holding. As of end-September, Legg Mason Capital Management, the unit of Legg Mason headed by Miller, owned 6.57 percent of Yahoo, according to Reuters data.

Miller also said he was surprised by mortgage finance firm Countrywide Financial's <CFC.N> move to sell itself to Bank of America <BAC.N> at a low price and that Legg Mason had not decided whether it will vote for or against the acquisition.

Legg is the biggest shareholder of Countrywide and recently raised its stake to 14.9 percent and has regulatory approval to hike its stake to 25 percent, he said.

"We were quite surprised by the decision to sell the company at close to a 7-year low in the stock price," the fund manager said.

"What makes the decision puzzling is that the company was seeing solid deposit growth, has no apparent capital problems, was not forced by the regulators to seek a merger partner, and is in sufficiently sound condition to have declared its regular quarterly dividend at the end of January," Miller said.

(Reporting by Muralikumar Anantharaman, editing by Richard Chang)

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