Major Investor Backs Yahoo's Board

Legg Mason's Support Hurts Icahn's Coup Attempt

SAN FRANCISCO, July 18 -- One of Yahoo's largest shareholders is supporting the reelection of the Internet company's incumbent board, a significant blow to a coup attempt being led by activist investor Carl Icahn.

With Friday's announcement, Legg Mason Capital Management became the biggest Yahoo shareholder to declare it will vote for the nine current directors -- who have been under fire since Microsoft withdrew a $47.5 billion takeover bid 2 1/2 months ago in a disagreement over price.

Legg Mason, a mutual fund manager, owns 4.4 percent of Yahoo's stock.

The final ballots in Yahoo's battle with Icahn will be cast at the company's annual meeting Aug. 1.

Signaling that Yahoo is pulling out all the stops, the company on Friday began promoting its argument against Icahn through links on the main page of its Web site -- one of the world's most trafficked.

Icahn, a billionaire with a history of challenging the boards of struggling companies, wants to replace Yahoo's directors with his hand-picked slate so he can negotiate a sale of all or part of Yahoo.

But Legg Mason said it believes the current board can just as easily handle any future negotiations with Microsoft.

"We believe the current board acted with care and diligence when evaluating Microsoft's offers," Legg Mason Chairman Bill Miller said in a statement. "We believe the board is independent and focused on value creation for long-term shareholders."

Icahn didn't respond to a request for comment Friday.

Microsoft has said it doesn't think it can negotiate a deal with Yahoo's current board.

Yahoo shares gained a penny, to close at $22.45 in Friday trading. Microsoft had previously offered $33 per share for the entire company.

Miller said he met several times with Yahoo chief executive Jerry Yang -- a board member -- before deciding which side to support.

Although Legg Mason plans to vote for all of Yahoo's current directors, Miller said he hoped the company could compromise with Icahn to avoid two more weeks of mud-slinging before the annual meeting.

A truce could require Yahoo to give up a few board seats to Icahn and his allies, a potentially bitter pill given that Icahn has alienated the company by teaming with Microsoft to bid for Yahoo's search engine. Yahoo rejected that advance last Saturday, a move that Icahn called "another grave mistake."

In an indication that Legg Mason believes Icahn deserves a place on Yahoo's board, Miller wrote, "We believe it is appropriate for large shareholders to have representation on corporate boards if they so desire."

In the past two months, Icahn has accumulated a 5 percent stake in Yahoo, outstripping Legg Mason's holdings.