Bill Miller Takes On Microhoo

Legg Mason (NYSE: LM  ) rock star Bill Miller has taken on some losing battles lately. After beating the market for 15 consecutive years, the fund manager has underperformed for two years and is off to a rough start this year. Now he's out to make a case that Yahoo! (Nasdaq: YHOO  ) should walk if Microsoft (Nasdaq: MSFT  ) lowers its buyout offer later this month.

"If Microsoft lowers the price, I'm not prepared to say that's better than Yahoo remaining independent," he told The Wall Street Journal.

What are you thinking, man? No one goes to see the Harlem Globetrotters wearing a Washington Generals jersey. 

Miller's fund company is a major shareholder in Yahoo!, so it's only natural for him to put the struggling search engine first. Back in February, he was one of the first vocal fund managers to claim that Microsoft should raise its original deal that valued Yahoo! at $31 a share.

Few are arguing that Microsoft needs to raise its bid at this point, especially in light of the recent crumbling fundamentals at Yahoo! and within the search industry itself.

The rub here is that Miller is directing his ire at Microsoft instead of Yahoo!. Microsoft lit a wick three weeks long over the weekend. That actually gives Yahoo! a chance to disappoint investors with its earnings report on April 22 and accept the original offer. That's pretty generous when you consider the many events that have transpired in that time:

  • Valuations of faster-growing companies in the sector like Google (Nasdaq: GOOG  ) and IAC (Nasdaq: IACI  ) have suffered double-digit percentage losses.
  • China's Alibaba has already hinted at forcing a sale of Yahoo!'s stake in it instead of accepting being handed over to Microsoft, a move that turns an attractive investment into a taxable event.
  • Google's acquisition of DoubleClick was approved, a move likely to eat away at Yahoo!'s display advertising superiority.

Miller has gone from asking for a higher offer -- something that is entirely in Microsoft's control -- to not lowering it, which is something that Yahoo! has a direct say in if it signs on the dotted line.

If Microsoft hasn't raised its bid after more than two months of sporadic meetings and is now threatening a proxy battle at what may be a lower price, Miller better hope that he doesn't get what he's wishing for.

An independent Yahoo! would be worth something in the range of the mid-teens as a stand-alone company, and possibly even in the low teens if the company's quarterly report is a doozy.

Stop wearing the wrong jersey, my friend, because the scoreboard doesn't lie.

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