Legg Mason Urges Microsoft-Yahoo Merger

Legg Mason funds manager Bill Miller on Thursday said Microsoft should go beyond its stated intention to forge a partnership with Yahoo and revive talks to acquire the Internet portal outright.

"It is a strategic imperative for Microsoft to change its position," said Miller, in an interview with Reuters. Miller manages the Legg Mason Capital Management portfolio, which holds a 5.45% equity stake in Yahoo.

Mill also told the news agency that he's undecided on whether to back a pro-merger slate of candidates for Yahoo's board that's been assembled by corporate raider Carl Icahn.

Microsoft CEO Steve Ballmer on Wednesday reaffirmed the company's position that it is no longer interested in acquiring Yahoo. "We are not bidding to buy Yahoo," said Ballmer, at a launch event for Microsoft's new research and development center in Herzliya, Israel.

Ballmer also reiterated Microsoft's statement over the past weekend that it's now seeking some form of partnership with the Web company. "We are trying to have discussions about deals with Yahoo that might create value, but not a whole acquisition of the company," Ballmer said, without further comment.

Microsoft on Sunday revealed in a public statement that it had approached Yahoo "with an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo." The company has declined to elaborate.

The betting is that Microsoft wants a deal that would combine Yahoo's search operations with its own, while allowing Yahoo's portal and display advertising units to remain independent. Yahoo might also spin off its Asian operations, including its stake in Chinese portal Alibaba, under such a scenario, the speculation goes.

Together, Microsoft and Yahoo would control less than 30% of the search market, compared to Google's 61.6% share, based on data released Thurdsay by comScore.

Oil man T. Boone Pickens told CNBC on Tuesday that he has acquired 10 million shares of Yahoo to support fellow billionaire Icahn's attempt replace Yahoo's board at the Internet company's July 3rd shareholder meeting.

Yahoo's current board rejected outright Microsoft's $33 per share takeover offer. In response, Microsoft broke off acquisition talks earlier this month.

Yahoo on Sunday said in a statement that it's open to a Microsoft partnership, as well as other options for boosting its search business. "Yahoo's board of directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties," Yahoo said.

Yahoo shares were off 0.04% in late day trading Thursday, to $27.32. Microsoft shares were up 0.99% to $28.53.