Monday, May 11, 2009

Microsoft Issues Debt

Mr. Ballmer and the SLT have pursued various strategies that have left investors, and analysts confused and perplexed. Microsoft recently announced its first issue of debt. Refer to

This leads to one very simple question. Why?

According to Microsoft the company said "it plans to use the proceeds from the sale of the notes for "general corporate purposes," which may include working capital, share buybacks and acquisitions".

Microsoft has according to the report $25 billion in cash and short-term investments. This is a tremendous amount of capital. The company also generates over $60 billion in revenue and approximately $25 billion in Operating Income.

Is the company really required to issue debt to fund share buybacks and acquisitions?

It has been indicated on numerous occassions that this campaign is oppossed to share buybacks. The company previously deployed $40 billion towards buybacks in an attempt to elevate the share price. It is historically evident that this initiative failed to elevate the share price and create value. Therefore, issuing debt to buyback shares will prove to be a poor decision.

A strategy to buyback shares demonstrates that the SLT has no real strategy on how to utilize capital to propel growth. It is more prudent to deploy capital towards acquisition growth. But, the company still has $25 billion in cash. Therefore, why issue debt?

This campaign has explained its contention with previous Microsoft acquisitions. It seems evident that the company has deployed billions on various acquisitions that fail to increase market share and revenue. Its Online Service Division is a prime example of wasted capital on acquisitions. Regardless, to increase market share in various sectors the company is required to pursue a drastic growth strategy.

Last year Microsoft attempted to acquire Yahoo for $45 billion. If the company has $25 billion in cash and is seeking to raise $3.7 billion, is Mr. Ballmer planning a major acquisition?

This campaign has indicated that its "New Strategy" for Microsoft incorporates the acquisition of RIM. The Microsoft employee that provided the analysis indicated that this would enable Microsoft to have presence with Danger and RIM. This would capture significant share in the youth segment and business segment of the handheld sector.

This campaign would not be oppossed to Microsoft issuing debt to pursue a game changing strategy. Issuing debt to not fully deplete the cash reserve and acquire RIM would prove a viable strategy for the company. It would postion Microsoft in a competitive position in the handheld sector.

However, what is perplexing is the intention of Mr. Ballmer, The Board and the SLT. Now that the talks have started with Ms. Bartz is Mr. Ballmer intending to pursue another attempt at Yahoo?

Will the issue of the debt prove beneficial for the long-term stability and growth of the company?

Will it be used to increase market share?

Will the issue of debt and its utilization enhance the stagnant share price?

Will it prove to be yet another nail in the coffin?

Let's hope that Mr. Ballmer and The Board will finally make some viable decisions that will benfit the direction of the company.

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