Microsoft Corp., which has amassed an unparalleled cash hoard of nearly $60 billion from its world-dominating software business, announced yesterday that it would return a large chunk of it to shareholders, much of it through a one-time dividend of $3 for every share held by investors.
With 10.79 billion shares outstanding as of March 31, the company will pay out more than $32 billion in that one stroke, pending approval of the plan by shareholders.
Company chairman and founder Bill Gates stands to get about $3.3 billion, and he pledged yesterday to give the entire amount to his family's foundation, already the nation's largest. Chief executive Steven A. 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 software giant, which last fiscal year generated profit that averaged $1.1 million every hour, has been under mounting pressure from Wall Street to put its growing pool of cash to better use than simply earning interest. Despite Microsoft's remarkable business success, the company's stock price has languished for two years, while many other technology stocks have posted significant gains.
In addition to the one-time payout, the company said it would double its annual dividend to 32 cents per share and buy as much as $30 billion of its own stock over the next four years. Buying back shares rewards all shareholders because it tends to drive up the price of the remaining stock.
But it was the one-time dividend that had Wall Street veterans searching their memory banks for anything comparable. Such payouts have occasionally been used in the past, but typically as a way to ward off hostile takeover bids.
"It's such a unique situation," said Jonathan Rudy, a software sector analyst for Standard & Poor's, who said most technology companies offer no dividends at all and have nowhere near Microsoft's war chest. "I can't think of anything like it."
The Redmond, Wash., company, founded more than 25 years ago, has become a technology behemoth, with its Windows operating system powering more than 90 percent of the world's personal computers. The announcement came after the trading day ended with Microsoft shares at $28.32. The stock was up about $1.50 in after-hours trading.
Microsoft executives said they were able to make the move after resolving most of the major legal battles that have ensnared the company for nearly a decade, including a case that led to court rulings that Microsoft broke federal antitrust laws.
Two years ago, the company settled that case with the Justice Department in a deal that was upheld last month by a federal appeals court. The case spawned several corporate and class-action lawsuits, many of which also have been settled, with Microsoft making numerous cash payments.
The company still faces a significant hurdle in Europe, where regulators also found antitrust violations and have ordered a record-setting fine of roughly $600 million. Microsoft is appealing the ruling, although it already has accounted for the fine on its books and put the money into a holding account pending the outcome of the case.
The company also faces one major private suit, from RealNetworks Inc., which makes a competing digital media player.
"We think we have put many of our legal issues in the rearview mirror, so to speak," Ballmer said on a conference call with stock analysts and reporters. He said Microsoft was "happy to be in this position" of giving $75 billion back to shareholders over the next four years, a total that presumes it follows through on buying the full $30 billion in company stock.
Such is the company's ability to replenish profit and cash that executives said they also would continue to look at possible acquisitions of other companies and maintain heavy research and development spending, which last fiscal year was $4.7 billion.
John G. Connors, the company's chief financial officer, said the plan was designed to try to navigate through the demands of several differing types of investor groups, some that wanted higher regular dividends, some that wanted a large cash payout and some that wanted a more aggressive stock buyback program.
The move is the second major Microsoft initiative in the past two weeks. Early this month, Ballmer sent an e-mail to the company's 50,000 employees calling for $1 billion in cost cutting.
Higher dividends, cost-cutting moves and a flat stock price often are signs of a company that is no longer capable of the rapid growth that is often prized by investors.
But Ballmer, who took over operational reins from Gates in 2000, rejects any such talk even as he guides the company along a lower-octane trajectory.
"As I look out for the next several years . . . I'm confident we have some of the greatest dollar growth prospects in front of us of any company in the world," Ballmer said. "We're in a phase of great opportunity and . . . of significant growth."
Analysts point out that although Microsoft's stock has largely stood still for two years, the company continues to grow by roughly 10 percent year-to-year, a feat most firms would envy.
Jeremy J. Siegel, professor of finance at the Wharton School of Business, praised Microsoft's move as smart.
"Cash that's just sitting around gets discounted" in the market, he said.