Legg Mason Plays Diplomat in Negotiations Between Microsoft and Yahoo

Legg Mason Capital Management Inc. owns more than 80 million Yahoo shares, which represents more than six percent of overall equity in the company. As Yahoo’s second-largest shareholder, Legg Mason obviously is more than a disinterested observer of Microsoft’s unsolicited takeover bid.

As one watches Bill Miller, the portfolio manager of Legg Mason Capital Management Inc.’s Value Trust fund, play diplomat between the predator on one side and the prey on the other, one comes away with a respect for his ability to understand and empathize with the parties involved. One also realizes that the current standoff between Microsoft and Yahoo must be making Legg Mason and all other large shareholders in Yahoo extremely nervous.

Microsoft’s bid probably is the best shareholders can hope to receive for their stakes in Yahoo. At the same time, they’d like to get a bit more from Microsoft than what is being offered.

Miller knows that reason ought to prevail, that Yahoo and Microsoft should be able to come to agreement that would see the latter acquire the former for somewhere between the current offer, valued at about $28.97 per share ($41.7 billion) and approximately $40 per share, which apparently was the price that had bee broached in previous discussions between the two companies.

Subsequently, of course, Yahoo’s stock price took a precipitous nosedive, affording Microsoft the opportunity to make its current bid, which Yahoo contends severely undervalues the company, current travails notwithstanding.

Miller also realizes a deal is never done until the fat lawyers sing. Much can go wrong in negotiations between Microsoft and Yahoo. Sure, the consensus is that a deal will be done eventually, and the consensus, at least in this instance, probably will prove right. Even so, positions can become entrenched, tempers can flare, the emotions and wills of people (the most volatile elements in any deal) can assert themselves.

Miller is trying to prevent that from happening, and you have to give him full marks for doing it so expertly. Probably even he wonders whether his efforts, and those others, will successfully bring these two companies together. 


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