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Filter - Cynthia L. Webb
Microsoft Gives Back, Grows up


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By Cynthia L. Webb Staff Writer
Wednesday, July 21, 2004; 10:57 AM

Talk about a way to please a crowd. Microsoft is finally dipping into its more than $56 billion cash stash, handing out a one-time dividend of $32 billion to its shareholders. The move, announced yesterday after the markets closed, sending Microsoft's stock up 3 percent this morning, not to mention its good performance in after-hours trading yesterday.

"We are confident in our long-term ability to grow revenue, profits and shareholder value through our innovation and execution. We have been successful in addressing a significant portion of our ongoing legal exposure, and all seven of our businesses are growing," said Steve Ballmer, Microsoft's chief executive. "We will continue to make major investments across all our businesses and maintain our position as a leading innovator in the industry, but we can now also provide up to $75 billion in total value to shareholders over the next four years."

The Wall Street Journal said Microsoft's plans – which include a one-time dividend payment of $32 billion, a buy-back of $30 billion of the company's stock and a doubling of its annual dividend to $3.5 billion – "are believed to represent the largest corporate cash disbursement in history. They mark a turning point for high technology's most successful company."

More from the Journal: "With growth slowing, Microsoft is signaling its evolution from hot stock to mature corporation. It has been successively transforming relationships with competitors, customers and its employees. Over the past year, it has mended fences with some of its staunchest rivals including Sun Microsystems Inc., resolved most of the long-running antitrust suits against it, instituted new policies for taking in customer feedback and killed its stock options in favor of another stock-based compensation preferred by slower growth companies. Now the focus is on shareholders, a change symbolized by the expansion of its dividend, which could fundamentally alter the makeup of Microsoft's investor base over time."
The Wall Street Journal: Microsoft To Dole Out Its Cash Hoard (Subscription required)

The New York Times reported that Microsoft "would bestow on its shareholders a special one-time dividend of $3 a share, a payout worth $32 billion. Although other companies have paid special dividends in the past, the size of Microsoft's payout is far and away the largest cash grant in corporate history. A large cash distribution to shareholders had been expected, according to Wall Street analysts, given investor pressures. Microsoft shares soared in the 1990's, but have been treading water in recent years as the revenue growth has slowed. At the same time, there has been mounting pressure on the company to do something about its mounting hoard of cash, which has ballooned to $56 billion. The $32 billion payout, which will be paid in December, will leave the company with more than $20 billion on hand. ... Analysts had expected Microsoft to announce an aggressive stock buyback plan and to increase its quarterly dividend payment. The surprise in yesterday's announcement was that the company was spending over half its cash on hand in a one-time giveback, which could even give a modest boost to the economy."
The New York Times: Microsoft To Pay Stockholders Special One-Time Dividend (Registration required)

Washington Post columnist Jerry Knight wrote about the announcement shortly after the close of the bell yesterday, noting Microsoft's "stock quickly started gained more than a dollar in after-hours trading, moving up even before Microsoft's 5 p.m. conference call to explain details of the plan. ... Microsoft officials said its operations are throwing off so much cash that it can afford to make the massive payout – which will cost as much as $75 billion by some estimates – without skimping on the massive research and development spending needed to keep it lead in personal computer software. In the past, Microsoft has said it was building up its cash reserves to pay any penalties in the anti-trust cases it has been involved in, but those have so far been settled at a relatively modest cost." Read a transcript of Microsoft's conference call here and also listen to soundbites from Microsoft chairman Bill Gates about the plan.
The Washington Post: Microsoft Sets Wall St. Up For Buying Frenzy (Registration required)

Investors Always Like More Cash

Company watchers lauded Microsoft's move. "This makes them look munificent, instead of malevolent. Wall Street doesn't like to see any company, no matter who they are, sitting on money and not doing anything with it. And let's face it, their stock has been stagnant for quite a while," Laura DiDio, senior analyst for the Yankee Group research firm in Boston, told the Boston Globe. "It's good to give excess cash back to shareholders and let them do something with it," Alan Davis, tech industry analyst at McAdams Wright Ragen, told USA Today, which wrote that Microsoft "will put an estimated $75 billion into the pockets of its shareholders." The Los Angeles Times reported that "Tuesday's announcement clears the air for Microsoft's quarterly earnings report and forecast Thursday, said Sanford C. Bernstein analyst Charles Di Bona. 'People have been obsessing about this cash,' he said. 'Now they can focus on the fact that operationally, this company is doing well.'"

Di Bona wasn't so glowing when he talked to the Financial Times. He said: "'I would have preferred to see more of that up front rather than over four years.' He also questioned Microsoft's decision to leave its dividend yield below the level of the broader market. The shares will yield 1.1 per cent, compared to around 2 per cent for the Standard & Poor's 500 index," the paper reported.
The Boston Globe: Software Giant Set To Pay Out $75b
USA Today: Microsoft Plans Big Dividend
Financial Times: Microsoft's $32 Bn Pay-Out Smashes Records

Microsoft Still Rich

Microsoft won't have to panhandle anytime soon. "Despite the huge one-time payout and buyback plan, Microsoft will still hold a staggering amount of cash. After accounting for the new plan, Goldman Sachs analyst Rick Sherlund estimates Microsoft will have about $24 billion in cash reserves. It meanwhile holds about $15 billion in other investments that could be easily liquidated," the Wall Street Journal reported. "The retention of those reserves could be a sign that Microsoft is eyeing some acquisitions, analysts and investors said after the announcement. Tight corporate technology spending combined with a growing desire by companies to buy technology from single suppliers are helping drive a consolidation of the software industry," the paper said. The Seattle Times wrote: "Microsoft's plan 'will reinvigorate investor interest,' said Brad Reback, an analyst with CIBC World Markets in Atlanta. 'Investors will take this as a signal that management is very focused on making sure investors get a healthy return from the stock through a combination of growth, dividend and repurchase,' he said. 'I think that will be well received.'" The paper also said the dividend payout "could be a windfall for the Seattle area, which has the largest concentration of individual Microsoft shareholders."
The Seattle Times: Microsoft's $75 Billion Plan: Share Wealth With Investors

The Washington Post said "Ballmer would get about $1.2 billion. But other large holders include mutual funds with millions of average investors, including the Vanguard 500 Index Fund, the Fidelity Magellan Fund and the College Retirement Equities Fund." The Wall Street Journal had another article about how the news bodes well for mutual fund holders. "More than 1,350 stock funds own shares of Microsoft today, making the company one of the most widely held stocks among the nation's stock funds, according to Chicago investment researcher Morningstar Inc.. The three funds with the largest bets on Microsoft are the Pioneer Papp Strategic Growth Fund, the Smith Barney Technology Fund and the Fidelity OTC Fund. All have more than 10% of their assets invested in the stock, according to their most recent portfolio reports to Morningstar."
The Washington Post: Microsoft Announces Payouts To Investors (Registration required)
The Wall Street Journal: Many Stock Funds Are Microsoft Holders (Subscription required)

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