Apparently, Legg Mason (LM) also finds the latest Microsoft-Icahn agenda profoundly unappealing. Still, the investment firm said it remains willing to consider a sale to Microsoft (MSFT), given the right conditions. “If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public,” Miller added. “If Yahoo shareholders support it, I am confident the board of Yahoo will accept it.”

Legg Mason’s vote is an important endorsement for the increasingly desperate Yahoo (YHOO), which today added a massive anti-Icahn button to its homepage in an effort to court shareholder sympathy. Click on it and you’re taken to a vicious critique of Icahn and his intentions for Yahoo that ironically begins with the investor’s own words: “It’s hard to understand these technology companies.” Yahoo then offers proof of that apparent lack of understanding with a helpful chart. Pulled from the company’s 34-page SEC filing today, it shows share prices of 12 of the 15 public companies in which Icahn has involved himself lately in apparent decline.

“If Microsoft raises the offer, the pressure shifts very quickly to Yahoo to negotiate,” Legg Mason portfolio manager Bill Miller told The Wall Street Journal. “To me, bumping the number up a buck [from $31 a share], that would have a big impact psychologically on shareholders. … If Microsoft lowers the price, I’m not prepared to say that’s better than Yahoo remaining independent.”

But you are if Microsoft “bumps it up” to $32, right?

In a letter to investors, Miller said Legg Mason estimates Yahoo’s value to be in the $40-a-share range –quite a bit more than Microsoft’s bid for the company, which currently values it at about $28.91 a share.

We think this deal is a strategic imperative for MSFT, and that YHOO is in a tough spot if it wishes to remain independent. It has been reported that MSFT has been discussing a combination with YHOO for well over a year, and that it had been prepared to pay over $40 per share previously. We have no way of knowing whether those reports are accurate or not.

“Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal. YHOO shares were recently trading at a four-year low, and the stock averaged above the current offer price for all of 2004.

“YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.”

Translation: Yahoo may not be willing to sell, but we are–if you sweeten your offer.