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Microsoft The Almighty Buck

Microsoft To Buy Back $40bn of Its Shares 345

phantomflanflinger writes "As you may have heard already, Microsoft have announced their intentions to buy back $40 billion in stock from their investors, in the biggest single buy-back plan in business history. The announcement has given Microsoft shares a small gain but they still stand significantly below their level in January — before Microsoft's unsolicited bid for Yahoo!. The announcement of the plan has also created new speculation about a now-or-never deal with Yahoo!."
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Microsoft To Buy Back $40bn of Its Shares

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  • by davidangel ( 1337281 ) on Tuesday September 23, 2008 @02:46PM (#25125911)
    ...a mac. right now.
    • Re: (Score:2, Funny)

      by sadgoblin ( 1269500 )
      I'd respond, but I'm more mature than you.
    • Re: (Score:3, Informative)

      by elrous0 ( 869638 ) *
      Thanks to bootcamp and Intel chips, Mac and Windows are no longer exclusive.
  • $40,000,000,000 (Score:5, Interesting)

    by Tubal-Cain ( 1289912 ) on Tuesday September 23, 2008 @02:48PM (#25125961) Journal

    Isn't that almost all of their spare cash?

    • Re:$40,000,000,000 (Score:5, Informative)

      by mpapet ( 761907 ) on Tuesday September 23, 2008 @02:55PM (#25126099) Homepage

      Not really. They allocate that much over the length of the project and spend it over a period of a few years.

      This is generally viewed as the company believing they are under-valued. It's a great time to "buy low" so they can sell them later at a higher price and keep the spread.

      Also generally speaking, there's a bit of wealth destruction going on when a company does this because the premium for shares rises over the course of the buy-back.

      It's also worth noting they've increased their dividend so investors are getting impatient with all of the cash they have laying about a couple of different ways.

      • by Reziac ( 43301 ) *

        So my small bit of M$ stock should go up in value, yes?

        When I bought it, it was doubling and splitting regularly, and was a good investment; along came XP and activation and M$'s stock went flat and has stayed that way ever since. I'd like to see it earn its keep again for a while before I sell it.

        • Re: (Score:3, Interesting)

          by amorsen ( 7485 )

          So my small bit of M$ stock should go up in value, yes?

          Not necessarily. You'll end up with a larger slice of a smaller pie. Your stock changes value only if "the market" decides the buyback is a particularly good or bad idea.

    • Re:$40,000,000,000 (Score:4, Informative)

      by Penguinisto ( 415985 ) on Tuesday September 23, 2008 @03:03PM (#25126267) Journal

      If they blew it all right now, it'd be 2x their available cash.

      OTOH, they'll more likely spread it over a few years, and skim it off the top of inbound money.

      In fact, IIRC they just got done with something similar, and that this is just pretty much a new iteration of that (which probably explains why Wall Street collectively yawned in its direction yesterday).

      /P

  • by Finallyjoined!!! ( 1158431 ) on Tuesday September 23, 2008 @02:50PM (#25125989)
    Why not spend $40bn on other stock.

    Doesn't make sense to me, come on you stockmarket guys, explain the rationale.
    • Re: (Score:3, Informative)

      by Rayeth ( 1335201 )
      Essentially this is a move to prop up their stock price to make the other investors (the ones who don't sell the stock) happy.
    • by Ubergrendle ( 531719 ) on Tuesday September 23, 2008 @02:54PM (#25126083) Journal
      You improve your P/E ratio, ultimately meaning that your dividends get spread across a smaller pool of stocks...makes the stocks more valuable as a blue chip commodity, raising their price. its a good strategy when you're taking a long view, and don't anticipate any future rapid growth. The $40b is controlled by the board of directors, and ultimately belongs to the shareholders. its not a funny money fund. Ultimately the best use of the $ is to improve the shareholder's value.
      • by Anonymous Coward on Tuesday September 23, 2008 @02:58PM (#25126157)
        Could you rephrase that in a car analogy?
        • by Anonymous Coward on Tuesday September 23, 2008 @03:03PM (#25126251)

          You're a car manufacturer. You buy a bunch of cars when they're not very valuable, particularly old used cars on the secondary market. You destroy these cars in mass. This in the long term creates better higher demand (thus price/value) for newly-produced cars in the future, because there are overall fewer cars in circulation, particularly old clunkers that people might otherwise use instead of getting a new car.

      • by Rayeth ( 1335201 ) on Tuesday September 23, 2008 @03:01PM (#25126215)
        Mod Parent Up Informative

        Also note that by doing this Microsoft isn't required to use all of that $40bn either. If they see something more attractive they can always shift the money around later.

        Also note that just sitting on a ridiculous amount of money (like the ~$30bn Microsoft has) is a terrible financial move. The board is right to do something with that money, and if they can't get Yahoo (all or part) with it, then best to do something worthwhile rather than sit on their hands and hope something good comes along

        • Re: (Score:3, Interesting)

          by TheRaven64 ( 641858 )

          Also note that just sitting on a ridiculous amount of money (like the ~$30bn Microsoft has) is a terrible financial move

          Not necessarily true, it depends on the rate of inflation. In times of economic growth then money you keep as 'cash' is earning interest (so increasing in value) and is highly liquid so can be rapidly transformed into other forms of asset, allowing the company to take advantage of new opportunities easily. Since money is backed by the government, it is much less of a risk than most stock investments. In times of economic slowdown or (related) high inflation you are unlikely to see much return - the money

      • I have an answer I can understand.

        However, $40bn is an awful lot of moolah, couldn't they improve shareholder value in some other more productive, or revenue generating way?
    • This pulls those stocks off the market, reducing the number of stockholders (and the votes that come with them). And hopefully if they need cash in the future, they could sell the stock for a higher price.

    • by AuMatar ( 183847 )

      Its a payout to current investors. Buy 1B shares at $40, and see the price instantly increase as buying it at anything under 40 is now a steal. The real question is why not just issue dividends.

      • by Amouth ( 879122 )

        Taxes.. and they market view.. and the cost of doingit

        if they where to issue dividens.. they would have to cut checks.. alot of them.. to alot of people.. this costs money. a good amount.. then the people get them would have to pay taxes on them (and ms would have to send tax forms for them) all of this transfering of money ot 9b shares is expensive.

        if they buy back .. then they only have to deal with the paperwork and movement of mony for 1b or less shares. then their stock price will also go up as th

    • by dgatwood ( 11270 )

      There are only two good reasons I can think of to buy back stock:

      • To allow a reverse stock split to avoid delisting.
      • To defeat a hostile takeover attempt by ensuring that the company and its board own more than 50% of the stock.

      So it's pretty obvious. They're afraid their stock is going to collapse to the point that they can be bought by SGI. :-D

      In other words, I haven't the slightest idea what is going through their heads, but then again, computer people have been wondering what Microsoft could possibly ha

    • Why not spend $40bn on other stock.

      Doesn't make sense to me, come on you stockmarket guys, explain the rationale.

      Because they want to raise the price of the Microsoft stock, not someone else's.

    • I can think of two reasons:
      - They buy the stocks now when they are low, because hey think the stock will go up and then they can sell them with profit.
      - They buy the stocks to get the price up (and then sell them with profit).

      Normally the stocks go up, down, up, down, etc. so if you buy when they have gone down, you will gain money later when they go up. But this isn't always the case. E.g. if you bought SCO stocks, you probably lost a lot.

      Personally I would not risk my money on their shares. Firefox is eat

      • by moderatorrater ( 1095745 ) on Tuesday September 23, 2008 @03:12PM (#25126437)
        IE loses them money and is still the dominant browser, Open Office just got passed up by Google Docs, and Linux hasn't even captured 10% of the market. Last numbers I saw put Linux + Mac at less than 10% of the total market. The 360 is the console that gets the most love for games with serious graphics.

        Overall, yes, Microsoft is declining, but their core windows products have declined by less than 10%. It's a little early to be writing their eulogy.
        • Re: (Score:2, Funny)

          by nomadic ( 141991 )
          Linux hasn't even captured 10% of the market.

          But Linux has only been around for 16 years; I promise you, next year will finally be the year of Linux on the desktop!
        • Re: (Score:3, Insightful)

          by dave562 ( 969951 )
          But their products keep getting worse. I have been using Microsoft products since DOS 3.3. They have boxed themselves into a business strategy that requires forced upgrades. The room for serious innovation in the market place is petering out. There might be some new features here and there, but there isn't much that can be done with an entire office suite, or operating system. Just look at Vista and Office 2007. I've used both and they suck compared to XP and Office 2003. There isn't any value added
        • yeah, but to date MS products have been better than the alternatives (linux fanbois regardless).

          However... fast forward to today. Linux is not just as good (at least, lets not get into arguments here), but its making big inroads into the server marketplace - Oracle sells Oracle, and you get a free OS to run it on (redhat^H^H^H^H^H^H'Unbreakable' linux). VMware sells you the best enterprise virtualisation product... that runs on Linux (RedH^H^H^H ESX).

          The desktop is getting close to being good enough to use

    • by lavalyn ( 649886 )

      This is effectively a dividend increase. They think the rate of return on other companies is not good enough at the moment, and the cash is just sitting there. So they'll return it back to shareholders.

      Consequences: lower float -> higher earnings per share.

    • by vux984 ( 928602 ) on Tuesday September 23, 2008 @03:06PM (#25126327)

      Doesn't make sense to me, come on you stockmarket guys, explain the rationale.

      It reduces the number outstanding shares. This good on several points:

      1) It counters stock dilution caused from issuing stock options, and previous financings, by reducing the shares outstanding adds shareholder value. (The remaining shares each represent more of the company than they did before.)

      2) It improves certain financial markers like 'earnings per share' (and others) because with fewer shares, the EPS and other figures look better. (One can argue this is just a sleight-of-hand to make earnings look better than it is, but the counter argument is that the lower EPS isn't representative of the companies actual strength, because it doesn't account for the 40 billion just sitting there...)

      3) A buyback is also an indirect way of distributing value to shareholders. (The direct option is dividends); a buyback by creating a demand and reducing the supply for the shares tends to bolster the prices, providing value to shareholders.
      4) MS is sitting on pile of cash and not doing anything with it, that's not in the shareholders best interests, so they should do -something- with it. If the shares are depressed, due to, for example, an unrelated global credit crisis, then a buyback may represent best investment of that money for the shareholders.

    • Basically it means that, as a company, you are telling your investors that you cannot really think of a more productive way of spending the money you have. Buying back your company is like giving money back to investors, with the added bonus (from the company side) that you can get it back with no ifs or buts. Also have the advantage of not having to be ever really made. You can make the announcement, and then after a year say that you changed your mind, or the markets are not favorable anymore. It's great.

    • Yahoo might want 40bn in MS stock as partial payment.
    • by OldManAndTheC++ ( 723450 ) on Tuesday September 23, 2008 @03:22PM (#25126611)

      Listen to the words of the oracle of Omaha, Warren Buffett, from the Berkshire-Hathaway 2005 Annual report:

      Too often, executive compensation in the U.S. is ridiculously out of line with performance. That
      won't change, moreover, because the deck is stacked against investors when it comes to the CEO's pay.
      The upshot is that a mediocre-or-worse CEO - aided by his handpicked VP of human relations and a
      consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo - all too often receives gobs
      of money from an ill-designed compensation arrangement.

      Take, for instance, ten year, fixed-price options (and who wouldn't?). If Fred Futile, CEO of
      Stagnant, Inc., receives a bundle of these - let's say enough to give him an option on 1% of the company -
      his self-interest is clear: He should skip dividends entirely and instead use all of the company's earnings to
      repurchase stock.

      Let's assume that under Fred's leadership Stagnant lives up to its name. In each of the ten years
      after the option grant, it earns $1 billion on $10 billion of net worth, which initially comes to $10 per share
      on the 100 million shares then outstanding. Fred eschews dividends and regularly uses all earnings to
      repurchase shares. If the stock constantly sells at ten times earnings per share, it will have appreciated
      158% by the end of the option period. That's because repurchases would reduce the number of shares to
      38.7 million by that time, and earnings per share would thereby increase to $25.80. Simply by withholding
      earnings from owners, Fred gets very rich, making a cool $158 million, despite the business itself
      improving not at all. Astonishingly, Fred could have made more than $100 million if Stagnant's earnings
      had declined by 20% during the ten-year period.

      Fred can also get a splendid result for himself by paying no dividends and deploying the earnings
      he withholds from shareholders into a variety of disappointing projects and acquisitions. Even if these
      initiatives deliver a paltry 5% return, Fred will still make a bundle. Specifically - with Stagnant's p/e ratio
      remaining unchanged at ten - Fred's option will deliver him $63 million. Meanwhile, his shareholders will
      wonder what happened to the "alignment of interests" that was supposed to occur when Fred was issued
      options.

      A "normal" dividend policy, of course - one-third of earnings paid out, for example - produces
      less extreme results but still can provide lush rewards for managers who achieve nothing.
      CEOs understand this math and know that every dime paid out in dividends reduces the value of
      all outstanding options. I've never, however, seen this manager-owner conflict referenced in proxy
      materials that request approval of a fixed-priced option plan. Though CEOs invariably preach internally
      that capital comes at a cost, they somehow forget to tell shareholders that fixed-price options give them
      capital that is free.

      It doesn't have to be this way: It's child's play for a board to design options that give effect to the
      automatic build-up in value that occurs when earnings are retained. But - surprise, surprise - options of
      that kind are almost never issued. Indeed, the very thought of options with strike prices that are adjusted
      for retained earnings seems foreign to compensation "experts," who are nevertheless encyclopedic about
      every management-friendly plan that exists. ("Whose bread I eat, his song I sing.")

      Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can "earn" more
      in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning
      toilets. Forget the old maxim about nothing succeeding like success: Today, in the executive suite, the alltoo-
      prevalent rule is that nothing succeeds like failure.

  • by Just Some Guy ( 3352 ) <kirk+slashdot@strauser.com> on Tuesday September 23, 2008 @02:51PM (#25126007) Homepage Journal

    Can we vote on this?

  • by jollyreaper ( 513215 ) on Tuesday September 23, 2008 @02:51PM (#25126017)

    Microsoft has made a lot of money off of OS and office products but hasn't been equally successful with the side ventures. Vista has been such a tremendous flop, I wonder what their internal projections are looking like for the next five years. I think it's arguable to say that the advances they've made in other segments stem directly from their control of the desktop. If they lose the desktop battle, will their products remain compelling enough to hold onto the beachheads in the server room, in the development shops? I doubt they'll dry up and blow away overnight but it looks like there's a serious possibility of a reduced relevance in the future.

    • by Locutus ( 9039 ) on Tuesday September 23, 2008 @03:15PM (#25126487)

      in the last 15 years, Microsoft has lost over $10 billion on Windows CE/PocketPC/Windows Mobile alone. The Xbox venture is probably already around $20 billion and yes, they've lost billions on everything outside of their ability to leverage the desktop OS monopoly. IMO

      I figure this is more to keep executives happy and employees happy as they have already seen 30% of their retirement vaporize this year alone.

      As far as Vista goes, it is forced onto OEM PCs so they get paid just like they did when Windows XP was preloaded. They might have changed the payment some because of different version packages but it's preload $$$ that keep flowing to their banks and only OEMs going away from Windows is going to slow that down. That's taking a while but gaining momentum every day.

      LoB

  • by CodeBuster ( 516420 ) on Tuesday September 23, 2008 @02:53PM (#25126057)
    This is probably better than losing the whole pile bit by bit to enterprising attorneys and their clever lawsuits AND with the markets being so depressed right now and the number of good alternative investments diminished it probably does make sense to recapture some of those outstanding shares while the price is still attractive.
  • What does it mean when a publicly traded company buy's its own stock?
    That doesn't make sense to me. Don't the stock owners own the company? What does it mean when you own shares of a company that owns shares of its company. Isn't it redundant?

    Disclaimer: I got A's in all my CS classes and B's and C's in my Economics / Business classes.
    • by Dan667 ( 564390 ) on Tuesday September 23, 2008 @03:03PM (#25126259)
      stock is like printing money for a company. When they buy back their stock there are less shares out in the wild so they hope the price will go up. If the current price of the stock is significantly less than what they think it is worth, it is a no brainier to buy it back and they get more influence over the company as well (less investors to complain about problems).
  • by dingbatdr ( 702519 ) on Tuesday September 23, 2008 @02:55PM (#25126107) Homepage

    I think Microsoft should buy up all the mortgage-backed securities it can get its hands on.

    That way I won't be forced to buy them (with my taxes).

  • Debt is cheaper (Score:4, Interesting)

    by zubikov ( 1172699 ) on Tuesday September 23, 2008 @02:55PM (#25126109)
    All this means is that debt is a cheaper and more risk-averse way for them to finance their crappy commercials and world takeover plans. In this market, you can see billions in capital evaporate in minutes. Not to side with Microsoft, but it was a good move as the market is about to take a dump.
  • ...in small words, what this means? What is Microsoft's motivation for doing this, and what do they hope to achieve? Is it a sign that they're in trouble, or is there some financial advantage to reducing the number of shares in play? For instance, if a company is cash-heavy, does that trip something with the analysts, requiring Microsoft to shed cash somehow? I'm not even sure what questions to ask.

  • by rssrss ( 686344 ) on Tuesday September 23, 2008 @02:59PM (#25126169)

    I am happy they are doing this. I wish they would buy back more stock instead of crapping around with Yahoo, and conducting R&D that they will never commercialize. Also they raised the dividend from its current crappy l1 cents to 13 cents which is still crappy. They should raise it to at least 40 cents.

  • by pacificleo ( 850029 ) on Tuesday September 23, 2008 @02:59PM (#25126181) Homepage
    Mark cuban recently wrote a post about the correlation between shares Buyback and Collapse of Financial powerhouse like AIG-Lehman and ML . I hope MSFT can avoid that fate. http://blogmaverick.com/2008/09/16/the-aig-lehman-merrill-lynch-link/ [blogmaverick.com]
  • Composite government funds own 82% of Microsoft according to this website. [cafr1.com]

    This file shows that the New York retirement investment fund had over $1,000,000,000 in MS stock in 2006. [cafr1.com]

    Add up every other state, county and city that owns Microsoft stock and it could really pile up.

    Could it be that our own Government over the last several decades has been promoting to those fortune 500 companies, of which Government owns most through Bond - Loan investment / stock ownership [EXAMPLES: 82% stock ownership of Microsoft Corporation, Disney 61%, AOL - Time Warner 58%, EXXON 72%] to manufacture abroad so that Government would realize greater returns on their investments at the Peoples of the USA's expense in jobs and wealth retention.

    -cafr1.com

    • by Otter ( 3800 )

      Composite government funds own 82% of Microsoft according to this website.

      Given the implausibility of that figure, I'd prefer to see it confirmed by a less psychotic-looking source.

      • by Otter ( 3800 )

        I couldn't resist looking myself ... the Google Finance link in the story here clams 60% total institutional ownership. And the billion dollars the NY pension owns doesn't look that large when you remember that the story here is the company's buying back $40B worth. You might want to go elsewhere for your investment advice.

    • by Anonymous Coward

      Now we see the REAL reason why the government failed to follow through on the punishment phase of MS's antitrust/monopoly furtherance conviction.

      Hell, in light of that one, even the most liberal left winger would suspend MS's punishment and spin up a story to cover that one.

  • 1. Buy $40B worth of stock
    2. Wait for it to grow
    3. Sell it for profit
    4. Ruin AAPL/GOOG share price by a sudden influx of stock.
    5. Lather, rinse, repeat. You also get voting rights as a major shareholder.

  • It's now or never,
    our bid is right.
    Yahoo, you're sinking
    'neath Google's might.

    We're desperate and it's geeeeeetting late.
    Icahn's our puppet and this chaaaaaaaaair won't wait.

    http://www.youtube.com/watch?v=lVMy0PFr8no [youtube.com]

  • by matthaak ( 707485 ) on Tuesday September 23, 2008 @03:13PM (#25126451) Homepage Journal

    Consider this move in the context of the financial system meltdown, with US Treasury bonds at 40 & 50-year lows.

    The *officially stated* purpose of this action is boosting MS share values. But they are almost completely going to deplete their entire cash reserve to buy back shares. From now on, they'll use debt -- bonds -- to finance expansion and development.

    They're bond rating is "AAA", which only 5 or 6 other companies and the government have.

    What's interesting is that with lending seized-up around the world, we know that money creation is basically halted. So, I wonder if there wasn't a little pressure on Microsoft to convert to a debt-financed operation & flood the market with new, high-quality debt, thus creating new money.

    • Re: (Score:3, Insightful)

      by CodeBuster ( 516420 )

      They're bond rating is "AAA"

      Yes, but part of the reason for that was the large amount of liquid assets (marketable securities in the amount of $40+ billion) which meant that for any amount that they were likely to borrow the chances of them being unable or unwilling to repay their notes was practically non-existent. If they use most of the cash hoard to buy back equity shares then the future credit rating will more accurately reflect the likely future sales and licensing revenues of their flagship products (Windows and Office) which h

  • And how much of this will come directly from Bill Gates, who has nominally been selling a million shares a month for seemingly forever now?
  • by RealGrouchy ( 943109 ) on Tuesday September 23, 2008 @03:26PM (#25126687)

    This sends a very clear message to Yahoo: Let us buy you, or we will buy ourselves instead!

    - RG>

  • by Nom du Keyboard ( 633989 ) on Tuesday September 23, 2008 @03:26PM (#25126695)
    Once I read an insightful article that pointed out how a stock buyback is the sign of a dying company.

    Why would it be that, you ask?

    Because a company who can't find a better place to invest their cash in expanding themselves into new areas (as opposed to merely buying back their stock) clearly has no vision or wish to be anything more than they already are.
    • by dave562 ( 969951 ) on Tuesday September 23, 2008 @03:42PM (#25126987) Journal
      When a company owns, what... 80%+ of the desktop computer market, the lack of desire to be "anything more" might not exactly be considered failure.
      • Re: (Score:3, Interesting)

        by nschubach ( 922175 )

        Here's my question... pretend you are an investor, you see the stock value is going down. You see that they are shifting advertising routes, losing market share to competitors, losing money on XBox, Zune, whatever... What would entice you to push all your money into that company?

        How is that any different than a company doing the same thing. Sure, it raises stock price/dividend over the short term, but it shows you that they don't plan on doing anything outside the flow of "normal business" which they have

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