One of Yahoo Inc.'s largest shareholders is supporting the re-election of the Internet company's incumbent board, delivering a significant blow to an attempted coup being led by activist investor Carl Icahn.
With Friday's announcement, Legg Mason Capital Management Inc. became the biggest major Yahoo shareholder to publicly declare it will vote for the nine current directors — a group that has 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 in its campaign, the company on Friday began promoting its argument against Icahn on the main page of its Web site — one of the world's most trafficked online destinations.
Icahn, a billionaire with a long history of challenging the boards of struggling companies, wants to replace Yahoo's directors with his own 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 as the Icahn-backed candidates.
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 Friday request for comment.
Microsoft has said it doesn't believe it can negotiate a deal with Yahoo's current board.
Yahoo shares gained a penny to $22.45 in Friday's late trading. That's well below the $33 per share Microsoft had previously offered to buy the entire company.
Miller said he met several times with Yahoo Chief Executive Jerry Yang — one of the company's board members — 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 reach a compromise with Icahn to avoid two more weeks of mud slinging before the annual meeting.
Negotiating 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 up with Microsoft to make a bid for Yahoo's search engine. Yahoo rejected that idea last Saturday, a move that Icahn lambasted as 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 to outstrip Legg Mason's holdings. Yahoo has responded by portraying Icahn as a mercenary investor primarily interested in a short-term windfall.
Now with Legg Mason on its side, Yahoo has lined up support from the owners of at least 14 percent of its shares, including Yang and fellow Yahoo co-founder David Filo, who together control nearly 10 percent of the company's stock.
Another major Yahoo shareholder, Gordon Crawford of Capital Research Capital Investors, has publicly expressed his anger with the company's board without stating how might will vote in the upcoming showdown. Crawford's decision will be crucial because his fund owns more than 6 percent of Yahoo's stock.
Shareholder advisory firms also will sway the battle when they issue their opinions. The largest advisory firm, RiskMetrics ISS, plans to make its recommendation by Wednesday.
Yahoo's second-quarter earnings report, due out Tuesday, also could affect shareholder sentiment.
After rival Google Inc.'s second-quarter profit disappointed investors Thursday, analysts suspect Yahoo's results will be a letdown too. If that happens, more shareholders may be inclined to oust a board that has overseen more than two years of financial malaise.
Even so, most analysts seem to think Yahoo's directors will win enough support to hold on to their jobs, reasoning that major shareholders won't want to turn the keys over to Icahn — an Internet neophyte.
Yahoo pointed out Icahn's technology inexperience in a campaign against his coup attempt that it unveiled on its home page Friday. The material reiterates much of the information that Yahoo has already presented directly to its shareholders and filed with the Securities and Exchange Commission.
But the decision to present its arguments to its mainstream audience made for a strange juxtaposition. At one point, Yahoo's attack on Icahn appeared just above a list of reader-recommended stories with the headlines, 11-year-old tracks down speeders with toy radar gun, and Flight attendant wins space trip after fishing wrapper from trash.