In a filing with the SEC yesterday, Legg disclosed that it now holds 9,592,126 Amazon shares, down from 24,280,422 shares in its previous filing in October. The latest sales reduce Legg Mason’s stake to 2.24 percent of Amazon’s outstanding shares.

The investment firm has been gradually paring back its shares over the last two years.

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A source close to Yahoo’s thinking emailed and declared that BoomTown was misinformed and ignorant of the insider mechanics of the high-level corporate wrangling when I suggested in a post earlier today that the settlement between Yahoo and Carl Icahn was perhaps not the time to break out the bubbly.

You know, because Yahoo’s (YHOO) stock is still moribund, morale is still low, Microsoft (MSFT) is still looming and the economy is still tanking.

Other than that, Yahoo sources wanted to let me know the Icahn truce was a win.

And that is absolutely true, technically speaking.

One source told me, for example, that Icahn was going to go to a short slate (four of nine), and once he went to a short slate, it was highly possible that shareholders would have put on a few members of his choice anyway.

In other words, if I can manage the onerous math involved: Three or four of nine board seats Icahn might have gotten if the proxy fight went forward would have been a lot worse than three of 11 seats that the activist investor actually got in the deal.

Plus, added another source, Yahoo has consent over two of Icahn’s board choices, one of which will likely be former AOL (TWX) head Jon Miller, an experienced Web exec who is favorably looked upon by Yahoo CEO Jerry Yang.

Yahoo certainly had the wind at its back after Legg Mason Capital Management’s (LM) Blll Miller said he was backing current management last week, so Icahn probably blinked and took a bird in the hand now.

As to Yahoo, cashing in now rather than gambling makes sense. I see exactly why the company made this move–it ensured a certain outcome, as annoying as it doubtlessly is to have to seat Icahn at Yahoo’s board table.

(Also, who gets to sit next to him? I vote for the always jovial Eric Hippeau!)

So, cashing in now and avoiding a fight makes sense for both sides, I hereby admit.

Except, well, that the man that Yahoo quite correctly was characterizing as a technology nincompoop just days ago will be sitting on its board.

Icahn is still not qualified to be on the board and will also probably be an unhelpful, disruptive influence.

In addition, while three out of 11 is better than three or four out of nine, Yahoo might have done better in the proxy fight.

More importantly, in fighting, Yahoo leadership would have shown it was resisting the snake oil solutions that Icahn has been peddling, which essentially boils down to selling all or part of Yahoo off to Microsoft so that Icahn can get back his underwater investment.

Doing a deal with Microsoft might be a good idea, actually, but Yahoo has not been able to make a truly rational decision about what its focus should be, due to all the noise and pressure and, yes, the press scrutiny, of every one of its moves.

Now with Icahn, who can be very persuasive, incessantly poking away from within, I think he will probably not let up and definitely not be the kind of influence Yahoo needs.

Given my math-impaired mind, I could be wrong, of course.

With fewer seats going to its nemesis, Yahoo is right when it says that Icahn, who was inevitable, will not be as much of a drag as he could have been. Unfortunately, he will still be a drag, however.

Could the new and improved Yahoo CEO Jerry Yang actually manage to beat back the proxy fight being waged against him by activist investor Carl Icahn?

It increasingly looks that way, with only 12 days to go until Yahoo’s annual meeting on Aug. 1.

But exactly which Yang will be running Yahoo (YHOO), if he does win, is probably the most important question shareholders need to ask.

Will it be the seemingly energetic Yang of the past two weeks, invigorated by the battle with Icahn and his new best friend and Yahoo foe, Microsoft (MSFT)?

Or will it be the other Yang?

Because for months and months now, since Microsoft waged its takeover bid on the Internet company he founded, the woe-is-me vibe emanating from Yang has been working the last nerve of anyone paying attention to the proceedings.

Given that this vibe was combined with a kind of cave dweller PR strategy of not speaking publicly–other than releasing an indignant, noncapitalized letter every now and then about the situation–some questioned Yang’s ability to gin up the kind of passion needed to bring Yahoo back from its current straits.

Even before the Microsoft parry in February, the ho-hum mood had trickled down to the troops, causing lower morale, too many departures and a general feeling–deserved or not–that Yahoo has been circling the drain for much too long under its current lackluster leadership.

And, let us not forget the drippy stock performance either.

And while BoomTown, especially, has to give both Yang and also Yahoo President Sue Decker much credit for appearing onstage at our sixth D: All Things Digital conference in May, most who saw the appearance (we posted the whole thing last week, starting here) were not blown away by the performance, considering it too enervated.

What then, do we make of the current round of pugnacious, dare-we-say, passionate, and, as it seems, pretty effective moves Yang has made this week to ward off the attacks of Icahn and Microsoft?

I should have gotten clued-in to the shift when Yang actually made contact with me on July 9, after being out-of-touch for many, many moons, presumably due to pique over my 100-day Sacred Cow Countdown (he started it!).

As it happened, I was in Seattle visiting a lot of Pacific Northwest companies, including Microsoft, when he called.

After our discussion, I published these choice quotes from Yang in a post on July 10, titled “Jerry Yang’s Pledge: Not on My Watch”:

“I think handing over the company to Carl Icahn for the express purpose of hoping he can negotiate a complex deal with Microsoft is a big mistake for shareholders. This is particularly true since Icahn has no plan B and therefore will have no leverage and will be dealing with Microsoft from a position of weakness.

“Furthermore, Microsoft’s interest in Yahoo has been inconsistent at best and they refuse to even put a firm proposal on the table. Their motivations are suspect and there is simply no good reason to think they will actually show up at the end of the day. And then what will shareholders be left with? A weakened, Icahn-controlled Yahoo.”

Then Yang went into overdrive over that next weekend as Yahoo managed to make a new Microsoft search proposal–which was really very, very generous–look radioactive by loudly declaring that Icahn’s taking over of Yahoo was crazy-glued to the plan.

It was not, but no amount of Microsoft spinning could undo the damage of what looked like a goofy power play by Icahn and Microsoft.

That was followed at the end of last week by the news that Yahoo had convinced one big investor, Bill Miller of Legg Mason Capital Management (who has always been a supporter of Yang and especially, Decker), to back the current board.

Legg Mason owns about 4.4 percent of Yahoo.

While not saying it was final, Miller noted that it was his intention to stick with Yahoo’s leadership, adding that he also wanted Yahoo and Icahn to settle their differences before the annual meeting.

Of course, Miller still tried to get Microsoft back to the table, noting, “If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public.”

One can hope, Bill! (Actually, as I have written many times, Microsoft should make that move if it really intends to compete against Google.)

But, best of all, was Yahoo sticking a big fat banner on its much-trafficked home page Friday, alerting its users–most of whom were really just minding their own business and trying to get their daily horoscopes.

Nonetheless, in a box that flashed various outrages about the proxy fight, Yahoo linked to a presentation that pretty much called Icahn a Luddite. It included a quote attributed to him from The Wall Street Journal: “It’s hard to understand these technology companies.”

You can say that again, Carl!

And Yang did say it again in video message to Yahoo employees, noting, “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.”

Ah, there is nothing like a technically clueless billionaire as an enemy to get Yang’s blood boiling!

Apparently, that has helped employee morale too. This weekend, I have heard from several execs contemplating leaving, tired of waiting for the 12th shoe to drop, who noted that more passion from Yang was helping.

“People feel like he is showing some strength, which you never see,” said one. “It sounds corny, but we want someone we believe in.”

Well, we’ll see if institutional investors believe, after they get a recommendation midweek from the large proxy-advisory service ISS Governance Services, which Yang and other Yahoo execs and board members visited last week to make their case.

That will come one day after Yahoo releases its second-quarter earnings on Tuesday, which I am sure will be decent, as they just have to be, considering the hubbub around Yahoo.

(And you can be sure Yahoo CFO Blake Jorgensen is working overtime this weekend, adding in all he can to make the picture as pretty as possible.)

It’ll be a big week for Yahoo, as usual, made bigger if Icahn does not mount an effective offense, such as releasing a cogent plan of his own and showing he has some managers in the wings who can run Yahoo if he were to get the reins.

Which Yang is not showing any signs of giving up anytime soon.

I fully expect Yang to get even more hopped up this week with more speeches to employees, more visits to shareholders and perhaps even more calls to the press. (BoomTown is waiting by the phone!)

Of course, this is all just show. And while it’s a good one, as I said, the most important thing everyone has to keep in mind is what this all means after Aug. 1.

So I have some questions for Yang:

Does he have the energy and vision and, most important, management chops, to really move the needle at Yahoo and make the kinds of changes it needs?

And what are those changes? More of the same direction (more social, more open) or perhaps a much more radical focus on core businesses like content and communications?

And what about search, a losing game as Yahoo inevitably will be crushed between Google (GOOG) and Microsoft? And what about fending off that pair’s new focus on display advertising, where Yahoo does excel?

Will Yang, if he does not think he has what it takes, be willing to step aside? And does that mean Decker will become CEO, or will he bring in new outside execs who have not been part of the problems of the past?

I could go on and on, of course, but it pretty much boils down to one key question:

Is the Yang who acts like he can win really here to stay?

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.

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.

BoomTown’s most favorite part of the Yahoo takeover circus?

The dueling letters, of course! How the lovely practice of missives has fallen out of favor, as soulless emails have grown in use.

Well, not in the land of hostile takeovers!

So here’s our decoding of billionaire investor Carl Icahn’s thankfully brief letter to Yahoo’s Chairman Roy Bostock, informing Yahoo (YHOO) he begins bombing in five minutes.

Icahn wrote:

Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153

Dear Mr. Bostock:

Translation: Who are you? Whatever. I regret to inform you, but I eat wimpy Chairman of the Board types like you for breakfast.

Icahn wrote: It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more-than-overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

Translation: Here I am stating the glaringly obvious. But don’t you like my use of self-righteous and indignant words like “unconscionable”?

Nonetheless, I must ask: What are you smoking over there on the Left Coast?

When someone dangles more than $40 billion to anyone on Wall Street, we’d throw our mother under the wheels of the bus if we needed to to get it. Frankly, we would do it for $12.43.

In any case, your break with reality is my golden opportunity.

Icahn wrote: During the past week, a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.

Translation: Gordon Crawford of Capital Research has me on speed dial, for your information. Also, you don’t have Legg Mason’s (LM) Bill Miller to kick around anymore!

Thus, like the good-only-for-pate goose you are, I am going to force-feed the Microsoft (MSFT) merger down Yahoo’s gullet on my terms and remove you from any and all decision-making.

I have bought a ton of your shares, I am going to buy more, I am checking with the Feds.

Check, check, double-check!

And, as an added SuperPoke, my largely unimpressive dissident board slate includes Mark Cuban, whose Broadcast.com Yahoo overpaid for in the last Web 1.0 bubble, giving him the ability to be the loud-mouthed, but highly entertaining owner of sports teams and a dancing fool, I might add, to always remind you that nice guys do finish last.

Nice guy? That would be you. Finish last? You again!

Icahn wrote: While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain “strategic alternatives.” I therefore hope and trust that if there is any question that these “strategic alternatives” might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.

Translation: Make a move to kiss up to Google (GOOG) any more and I promise I will slap you back to last Sunday, instead of just having a hissy fit like Microsoft CEO Steve Ballmer.

As to AOL (TWX), I have three words, if you try to merge with that dog: An Overwhelming Lawsuit.

Icahn wrote: I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.

Translation: Wait, I have three more words: Make my day.

Icahn wrote:

Sincerely yours,
CARL C. ICAHN

Translation: First, I am adult who uses all caps when writing my name, as opposed to Yang, who signs letters like a toddler, like this: jerry.

Also, I am not sincere in any way whatsoever and never have been in my entire life.

Except that one heart-breaking time when I was but a wee billionaire activist investor: Rosebud!

BoomTown feels like a digital postal carrier today, delivering a small message each for Microsoft (MSFT) CEO Steve Ballmer and Yahoo (YHOO) CEO Jerry Yang from some of your bigger shareholders–some of whom own you both, in fact, and with whom we like to check in with from time to time to gauge their mood:

Steve: Greetings! Well, not greetings, exactly, since many of us are still really annoyed by the mean letter you sent to Yahoo two weekends ago.

Actually, we would not have minded a mean letter directed solely at Yang and the board.

In fact, if you had just focused on Yahoo’s lack of cooperation and your frustration in wanting to start negotiating and reiterated how valuable Yahoo was to you, that would have given us cover to phone up Yahoo and complain about inaction.

Instead, you threatened a price drop, which is like delivering a Kung Fu Panda blow right to the collective windpipe of big shareholders and makes it impossible for us to do anything but complain about Microsoft.

Which is precisely what Legg Mason’s Bill Miller did like clockwork, of course.

“The problem is Microsoft blundered with the letter this weekend,” Miller said flatly in an interview in The Wall Street Journal. “Telling the shareholders you’re going to take something away from them is not a way to get their support.”

So, now to assuage us, you probably have to raise the price. A poll of those BoomTown talked to said $2 more would do it and $3 would be a clincher.

Our advice: Lob a call into Miller and also Capital Research & Management and all the other big owners of Yahoo shares and do a little sweet-talking.

Dear Jerry:

Salutations! Well, not salutations, exactly, since many of us are perplexed at what exactly is the plan.

OK, we like all the activity of late, as it is keeping the pressure on Microsoft. But we are deeply dubious of the efficacy of all the various plans.

While we would grudgingly accept a union with AOL, with an investment from Time Warner (TWX) and even a stock buyback, we are nervous that it could be a disaster.

Most of all, there is the question of leadership and who would run this obviously hard-to-manage organization. We are not so sure that anyone in either team is up for it, and we just cannot imagine making that call to Steve Case and Bob Pittman to reassemble the old band.

And, while we love the idea of Google adding $1 billion in cash flow to the bottom line via an outsourcing deal to take over search-ad monetization, it’s a risky move fraught with regulatory questions, potential legal quagmire and increased aggression from Microsoft.

In fact, given how clear the Microsoft option is, especially if the price goes up or it switches to an all-cash deal, we still maintain that the most likely outcome is that we will support a richer Microsoft bid, since it presents us with the most clarity.

Or, as Fergie sings in her delicious “Big Girls Don’t Cry”: “Clarity, Peace, Serenity.”

So whatever happens, remember that big companies don’t cry either.

Have a great weekend and enjoy the video:

And exactly what does Miller–whose fund only holds Yahoo (YHOO) shares and not those of Microsoft (MSFT) too, as do many big shareholders of Yahoo–want?

Three guesses and the first two don’t count!

More money, of course, and no more thuggish threatening from Microsoft to drop the price.

In an interview with The Wall Street Journal’s most excellent Kevin Delaney published today, Miller (pictured here in a lovely dot-drawing) said Microsoft had “blundered” by threatening in a letter the software giant sent to Yahoo over the weekend to go hostile and perhaps even drop the price of the deal.

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

If Microsoft does that, said Miller, Legg Mason–which owns about 7% of Yahoo–would back Yahoo’s efforts to stay independent and even buy more Yahoo shares, as they presumably dropped like a falling knife if Microsoft were to pull its bid.

The bigger question is whether anyone else will follow Miller, such as Capital Research & Management, which owns 11.6% of Yahoo (along with 5.6% of Microsoft), in publicly supporting Yahoo (or, in fact, Microsoft).

I doubt it, unless things got really ugly in a true proxy battle.

But BoomTown’s post last week that many significant shareholders indicated a preference to back the Microsoft deal was borne out by a Piper Jaffray (PJC) research note released yesterday, which the Journal cited, that surveyed 20 institutional Yahoo investors and concluded that “the majority suggest they favor the current deal to no deal.”

And, to me, the most interesting part of Delaney’s piece was a throwaway line at the bottom, in which Miller “dismissed the idea that Yahoo can find an alternative deal that would be palatable to shareholders.”

Since Yahoo is still ferreting away with execs from Time Warner (TWX) and its AOL unit–you know, that rat’s-nest of a deal in which AOL, Time Warner investment dollars and, oh, some old fishing rod of former exec Don Logan’s is thrown into Yahoo for a 20% stake, along with perhaps a dollop of Google (GOOG) involvement for added complexity–the lack of support from Miller for a more complicated scheme than the cleaner Microsoft deal is, to my mind, much more significant.

In any case, Miller’s support of Yahoo is absolutely no surprise given how close Miller has been to Yahoo over the years, especially due to the lavish attention and care Yahoo President Sue Decker, a former stock analyst, in fact, has given to Wall Street fund managers in general.

Still, as the major Yahoo-only shareholder, Miller has weight, although his higher-price plea is not a new tune.

In fact, when the bid was first revealed, Miller urged a higher price and cannot be too happy about the current value of the original unsolicited cash-and-stock offer of $31 a share. It is now worth about $29 due to a drop in the value of Microsoft’s shares.

And given that a higher price would surely bolster Legg’s performance, Miller reiterated his interest in more dollars from the Microsoft kitty in his interview with Delaney, even offering negotiating tips to Microsoft CEO Steve Ballmer.

“If Microsoft raises the offer, the pressure shifts very quickly to Yahoo to negotiate,” he said. “To me, bumping the number up a buck [from $31 a share], that would have a big impact psychologically on shareholders.”

Only one single dollar and shareholders get shiny and happy!? Message received, Steve Ballmer?

Please see this disclosure related to me and Google.

“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.