Microsoft's new acquisition target: itself

In Tuesday's IT Blogwatch, Richi Jennings wonders no more what Microsoft will do with all that cash it has swilling around in the bank -- if it can't buy Yahoo, Microsoft will buy itself. Not to mention the health of North Korea's "dear" leader...

Gregg Keizer reports:

Steve Ballmer
Microsoft Corp. [on Monday] said that it will buy back as much as $40 billion worth of its own stock during the next five years.

The share-repurchase announcement is a follow-up to similar plans made in 2004 and 2006, when the company bought $30 billion and $40 billion of its own stock, respectively. This new buyback will run until Sept. 30, 2013.
The company's board of directors also declared a quarterly dividend of 13 cents per share that will be paid Dec. 11.
...
Analysts had wondered what Microsoft would do with its cash after it was spurned by Yahoo Inc. ... According to Microsoft's most recent financial statement, as of June 30, it had $23.7 billion in cash on hand.
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John Paczkowski smirks:

Looks like this period of “rapid and profound change” on Wall Street hasn’t much fazed Microsoft (MSFT) and Hewlett Packard (HPQ). This morning Microsoft’s board authorized a new five-year $40 billion share buyback plan and an 18 percent dividend boost. Meanwhile, HP said its board had approved the repurchase of $8 billion in company stock.
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Jack Schofield thoughtfully sucks on his pipe:

Not that it seems to have done its stock price any good. But as everyone knows, a share price is a discounted sum of expected future profits, and investors have mentally transferred large quantities of expected future Microsoft profits to expected future Google profits.

Of course, Microsoft may also feel that having the odd $40 billion in spare cash is just offering too much temptation to rapacious rent-seeking governments.
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Scott Moritz explains:

The buybacks are aimed at restoring investor interest in companies that have had very little to show in terms of growth amid a sluggish tech spending environment. Using some of the mountains of cash also helps discourage activist investors from forcing the companies to make a similar move on somewhat different terms.

The move comes less than a week after Microsoft shares hit a two-year low on a broad credit-crisis selloff on Wall Street.
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Joseph Weisenthal helps out too:

Well, that’s one thing they can do with all their cash ... We’ve discussed several times in the past what Microsoft might do with all the cash burning a whole in its balance sheet. No doubt the company will keep making acquisitions, but once Yahoo (NSDQ: YHOO) fell through, there was nothing out there likely to move the needle. Hence a big share buyback was always a possibility. Just last month, UBS analyst Heather Bellini predicted a major buyback.

Of course, the company isn’t obligated to spend the whole $40 billion. In the announcement, the company says it may tap the debt markets from time to time for working capital and to fund the share buy.
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Like many tech companies, Microsoft was, for a long time, reluctant to do anything that smacked of maturity, like buyback shares or issue a dividend. That changed in a significant way, in 2004, when it announced a special one-time, $3 per share dividend worth around $32 billion.
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And there's more to come, posits Jim Goldman:

All of this may serve as a clarion call to other cash rich tech companies to start sharing their wealth ... All eyes will turn to next to Apple, naturally. About $21 billion in cash, an enormous position for a company Apple's size. But the company's shares have dipped well off their highs and if they were a good deal at $200, they've got to be a phenomenal deal at $140. Would Apple take the step toward a dividend or a share buyback? Steve Jobs has been reluctant before, and is likely reluctant today.

I'm not sure the company needs it, but if it were to happen, it would dramatically pop these shares. The company wouldn't be doing so from a position of weakness ... Likewise for other cash rich companies: Google, IBM, Cisco, even Research in Motion with better than $2 billion in cash.
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And finally...

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Richi Jennings is an independent analyst/adviser/consultant, specializing in blogging, email, and spam. A 22 year, cross-functional IT veteran, he is also an analyst at Ferris Research. You can follow him on Twitter, pretend to be Richi's friend on Facebook, or just use boring old email: blogwatch@richi.co.uk.

Previously in IT Blogwatch:

Copyright © 2008 IDG Communications, Inc.

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