Another stunning new development in the ongoing Yahoo-Microsoft-Google saga – one of Yahoo's biggest shareholders endorsed the company's incumbent board of directors on Friday, marking a stunning blow to billionaire Carl Icahn's campaign to take over the beleaguered Web portal.

Legg Mason Capital Management Chairman and CEO Bill Miller announced plans to back current CEO Jerry Yang and his management team in the upcoming annual general meeting on 1 August. However, neither of the affected parties – Miller, Icahn or the Yahoo management – has commented further on the issue.

Legg Mason, which owns 4.4 per cent of outstanding Yahoo stock, is the first large shareholder to publicly support the board, improving Yang's chances of staying in power. Icahn has recruited BP Capital LLC chairman T Boone Pickens and hedge-fund manager John Paulson in his campaign to unseat the directors and force Yahoo to strike a deal with Microsoft Corp., which wants to buy Yahoo's search business.

"We believe the current Board acted with care and diligence when evaluating Microsoft's offers," Miller said in a prepared statement. "We believe the Board is independent and focused on value creation for long-term shareholders." He also called on both Yahoo and Icahn to "reach a mutual agreement on the composition of the board and end this disruptive proxy contest."

With roughly 60.7 million Yahoo shares, Legg Mason is Yahoo's second largest shareholder after Capital Research & Management Co. The latter owns roughly 16 per cent of the company's outstanding shares through its Capital Research Global Investors and Capital World Investors concerns.

Miller also appeared to reject one of Icahn's central arguments in his campaign, namely that Microsoft CEO Steve Ballmer made it clear to Icahn that the software giant would only negotiate with a new board.

"While boards are there to protect shareholder interests, shareholders own the company," Miller said. "If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public. If Yahoo shareholders support it, I am confident the board of Yahoo will accept it."

Miller, manager of Legg Mason Value Trust since its inception in 1982, beat the Standard & Poor's 500 Index for a record 15 straight years. He has lagged behind the benchmark every year since the streak ended in 2006.

The fund has fallen 31 per cent this year before today, more than twice the decline of the S&P 500, on losses from stocks including mortgage-finance company Freddie Mac and Sears Holdings Corp., the biggest US department store chain.

Miller's vote of confidence has evidently emboldened Yang who struck a confident note in a video message to his employees in which he announced an online advertising campaign in a bid to win over shareholders in the fight against Icahn.

"We've also increasingly seen stories in the media that reflect an understanding of our position," Yang said, "with one of the largest audiences on the Internet, we're taking full advantage of the power of our network to remind our stockholders why voting for Carl Icahn's board of directors is a bad choice."