Yahoo!'s bigger shareholders may opt for merger with Microsoft

Seattle: Yahoo Inc's heavyweight institutional shareholders could be keener in ensuring that Microsoft Corp does not overpay in its bid to get Yahoo! to fly the windows flag, mainly because they have even more money invested in the acquirer. After all, its all about the money.

At least that is what a research report by financial risk management analysis company RiskMetrics Group found. The report says that almost 90 per cent of Yahoo's institutional shareholders have a cross-holding in Microsoft, with more of their eggs in the software giant's basket.

In a face-saving manoeuvres that could follow from Yahoo! directors, one scenario that could play out is that cross-holding shareholders would ask them to extract a sweeter deal, prior to succumbing to the offer. 

Earlier in the week, Yahoo!'s second biggest shareholder, Legg Mason Capital, urged Microsoft to make a better offer. Legg Mason's ace fund manager Bill Miller has advised investors of an estimated ''fair value'' for Yahoo! at around $40 a share. RiskMetrics said this is not surprising, as Legg Mason is one of three of Yahoo!'s top 20 institutional shareholders, with significantly more money in Yahoo! than in Microsoft.

RiskMetrics says that a shareholder with cross-ownership of stock in the target and the acquirer will naturally be more interested in the ''net benefit'' of a deal, and shareholders who have invested more in Microsoft than in Yahoo! will most likely urge it to give its case a rest earlier than later.