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Yahoo! Investor Criticizes Microsoft's Threat

Bill Miller says Microsoft should raise its offer for Yahoo!
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SAN FRANCISCO -- An influential Legg Mason portfolio manager is criticizing


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for threatening to lower its bid for




Bill Miller of Legg Mason told

The Wall Street Journal

that Microsoft had "blundered" when it sent a letter to Yahoo! over the weekend, in which it implied that it might cut its bid of $31 a share if it ended up taking its offer directly to shareholders.

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Legg Mason owns 7% of Yahoo!, making it the company's second largest shareholder behind Capital Research & Management Co.

Miller said he is not pleased with Microsoft's current offer, which has fallen to about $29.14 because it is linked to Microsoft's stock price. He said that the company would have been better served sweetening the deal so that Yahoo! would come to the table and negotiate.

In its retort to Microsoft on Monday, Yahoo! again accused the software giant of undervaluing its worth. Yahoo! noted that it has already reaffirmed its revenue guidance for the quarter and the year, and continues to forecast growth in the future.

The Sunnyvale, Calif.-based Internet company is moving ahead with a series of initiatives intended to drive that growth. On Tuesday, it announced that its photo site, Flickr, would now allow its premium users to post short video clips -- a clear attempt to compete with


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popular site, YouTube.

Whether such initiatives will make a difference remains to be seen. Most observers believe that Microsoft will ultimately win in its bid for Yahoo!, but they are divided on the price. Some think Microsoft will be forced to cough up more money, as much as $35 a share. Microsoft, however, continues to dig in its heels at $31 a share, or possibly lower.

In his letter over the weekend, Microsoft Chief Executive Steve Ballmer gave Yahoo! until April 26 to come to the table and hammer out a deal, or face a proxy battle in which Microsoft will try to replace Yahoo!'s board with its own. In the event of a proxy battle, Ballmer said Yahoo! would face the risk of a lower bid.

Shares of Yahoo! were down less than 1%, or 15 cents, to $27.55 in afternoon trading.