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A portfolio manager at Legg Mason Capital Management, Yahoo’s (NASDAQ: YHOO) third-largest shareholder, said on Friday he is not sure if he will support activist investor Carl Icahn’s board slate.
Icahn has nominated a slate of directors to replace Yahoo’s board at an Aug. 1 shareholders meeting and is seeking to oust Yahoo Co-founder and Chief Executive Jerry Yang in a bid to revive buyout talks between Yahoo and Microsoft (NASDAQ: MSFT).
“Icahn has got three things. He wants to fire Jerry, eliminate the severance package and he wants to force the sale,” said Robert Hagstrom, whose Legg Mason Growth Trust counts Yahoo as its top holding.
“If he can’t force Microsoft to buy them, what’s plan B? I need a plan B. And if you are going to fire Jerry, who do you hire?” Hagstrom told reporters on the sidelines of Morningstar’s annual investment conference in Chicago.
Hagstrom called the prospect of a new CEO a choice between “the devil you know and the devil you don’t know.”
His comments come after Legg Mason’s star portfolio manager, Bill Miller, said in late May that he has not decided whether to support Icahn’s proxy battle.
Since then, Yahoo has rejected another Microsoft offer to buy its search business and to take a minority stake in the Web company. Instead.
Yahoo chose to sign a search advertising deal with Internet leader Google (NASDAQ: GOOG) in mid-June.
Shares of Yahoo fell nearly 20 percent in the weeks that followed, as Microsoft signaled that it was not interested in renewing its bid for the Silicon Valley company. Whatever the merits of the Google deal, analysts said it would not boost Yahoo’s share price to the $33 that Microsoft had offered.
Yahoo shares were trading down 1.5 percent at $21.05 on Friday.
But while many shareholders are unhappy with Yahoo’s management, it was not clear how much of that anger would translate into support for Icahn’s slate.
The billionaire investor, who owns nearly 5 percent of Yahoo, has said his nominees would hire a new CEO, if elected, and would offer publicly to sell Yahoo to Microsoft. But it was not clear if Icahn could bring Microsoft back to the table.
As of March 31, Legg Mason Capital Management, a unit of Legg Mason (NYSE: LM), owned 5.24 percent of Yahoo and was the third-largest shareholder, behind Capital World Investors and Capital Research Global Investors.
Hagstrom said joining forces was the only way to compete against Google and held out hope that Microsoft, under CEO Steve Ballmer, would return to the table.
“Somebody made the wrong decision. Steve either made the wrong decision, walking away or Jerry made the wrong decision not to sell. And their careers will be defined by that in the next 12 months,” he said.
