This week while Microsoft and Yahoo are busy hammering out an acquisition deal, Legg Mason, a major Yahoo shareholder has publicly stated that he will back Yahoo’s effort to remain an independent company if Microsoft refuses to increase its bid. Currently, Microsoft’s offer stands at $42-billion USD, which is beginning to be negatively affected by the dip in Microsoft’s stock price recently.

Portfolio manager Bill Miller told reporters that Microsoft has made a mistake with the letter it issued Yahoo over the weekend. Microsoft CEO Steve Ballmer told Yahoo that it would go directly to Yahoo shareholders if the board of directors did not come to a satisfactory conclusion. Miller said that this was a mistake on Ballmer to say such a thing.

"The problem is Microsoft blundered with the letter this weekend. Telling the shareholders you’re going to take something away from them is not a way to get their support," Miller said.

Yahoo board again rejected Microsoft’s offer this week, saying that Microsoft’s offer still undervalues Yahoo. Jerry Yang, Yahoo CEO, indicated in a letter that the proxy battle was counterproductive and told Ballmer that Yahoo would only be open to a deal if Microsoft revised its offer — to be higher.

Microsoft’s offer to Yahoo is already giving shareholders a 60% premium on top of the current Yahoo share trading price and feels that its offer is more than generous as is. Steve Ballmer told reporters this week that Microsoft doesn’t intend to raise its offer because no other company wants to buy Yahoo.