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Discussing a Private Buyout of Microsoft
PatriceVignon writes "Are private buyout companies setting their eyes on Microsoft? The Financial Times claims exactly that in an article called 'Private equity folk could do wonders with Microsoft', as ZDnet reports: 'Consider Microsoft, which has a balance sheet so inefficient that it would make a private equity investor weep ... The new management could take the axe to Microsoft's $6.6bn of wasteful research and development expenditure. The bloated workforce of more than 60,000 could be slashed, to the point where the huge resulting increase in cash flow would at last permit the company to borrow mega-billions.' Business Week, though, begs to differ: 'practically speaking, it's not going to happen,' and quotes Daniel Primack: 'Snakes on a Plane will win a best picture Oscar before Microsoft gets acquired by LBO firms.' What do you think?"
If Titanic can get one, anything is possible.
"The new management could take the axe [sic] to Microsoft's $6.6bn of wasteful research and development expenditure."
And then Apple will produce wondrous innovations, and replace Microsoft as the leading OS supplier, and Microsoft will go under and LBO will write it off as Microsoft's fault somehow.
why not just fire everybody (including the R&D department) and, why stop there, why not also sell all the buildings, liquidate all the infrastructure, think of the additional savings! think of just how much cash flow you could get with 0 expenses in your P&L statement!
-- the cake is a lie
Microsoft's R&D spending might make a private equity investor weep, but private equity investors are around to buy distressed or underperforming companies, make them lucrative, and sell them. They don't care about long-term R&D or having a product pipeline further out than when they cash in their investment by selling the company.
Of course you could starve and loot Microsoft and make a lot of money, but only if your plan is to dispose of the carcase before it begins to rot.
"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled"
"...to the point where the huge resulting increase in cash flow would at last permit the company to borrow mega-billions."
Yes, because the highest aspiration of any company is to BORROW lots of money, not to, I don't know, turn a profit. Seriously, what are these people smoking?
Some private equity firm thinks Microsoft, one of the richest companies in the world, would be better off borrowing money?!? I thought capitalism was about maximizing profit. When did things change?
I guess I really need to brush up on my economics . . .
I'm not tense. I'm just terribly, terribly, alert.
How does cutting R&D and the workforce = good business plan?
And why would Microsoft need to borrow "megabillions" anyway, let alone at the cost of their workforce and R&D?
Any sufficiently well-organized community is indistinguishable from Government.
And monkeys are going to fly out of my butt before M$haft gets purchased by any private equity leverage firms. I find it sad that /. has become so desperate for articles they will even let
a topic like this make believe hit on a Dry News Friday (tm).
Have a nice weekend, with or without /.
Aside from the insane value of the buyout (as previously commented), the simple fact remains that MS' management is too egotistical to allow this to happen. If anyone did put forth any effort on a buyout, the MS spin machinery would immediately set its sights on their own shareholders to dissuade them.
The 1980's are over, and good riddance. Get over it.
Schwab
Editor, A1-AAA AmeriCaptions
It seems like every time some hack reporter or "inside" blogger comes up with stuff like this, it ends up on Slashdot. It's not news, it's speculation, and dodgy speculation. It reminds me of other invented news, like groundless top ten lists or supposedly new trends. Nothing more than one person's interpretation of a mixed bag of news and opinions. Real news is something like this. An event or fact of some sort is related. It's discrete. Stories such as this Microsoft takeover are simply conjecture. There's certainly a place for conjecture, and some is more informed than others. Rumors about the AMD/ATi deal were correct, and were also more plausible. That the Microsoft post itself acknowledges how entirely unlikely it is, I have to wonder... why then was it passed on?
No, generally speaking it's the silly geese at the Financial Times who do. Or not. This is probably just one of those outrageous speculations that journalists do to provoke outraged responses and boost circulation. Not unlike...uh...never mind.
But the proposition that a rich company would be better off in a borrowing state is not without merit. People forget companies are not people, and the same intuitive "rules" about sensible financial decisions do not apply. It's good as a person to have a lot of cash in the bank. Makes you secure. Not so for a company. A company is not an end-user of wealth, the way people are, but merely an engine for transferring wealth from one group of people (the customers) to another (the employees, investors, and subcontractors) [Value flows the other way, of course, but we're talking cash money here.] The goal is to do so as efficiently as possible. Money received from customers should be "invested" as soon as possible, i.e. transferred to new hires, new capital equipment, et cetera. It's doing nothing useful sitting in the bank. The only money a company should keep lying around is a small cushion for unexpected fluctuations in the market, the price of resources, et cetera.
But why borrow? The reason is that you don't have to wait until you've accumulated enough cash from present operations to invest in the capital expansion necessary to undertake future, more profitable operations. You borrow the money immediately, then start the new more profitable operations immediately, and pay back the loan. Presumably the fact that you start earning bigger money earlier pays for the cost of the loan. Everybody wins.
It's not the same as an individual borrowing money to buy a car, which is more nearly pure consumerism. It's more like borrowing money to go to college. It's much more sensible to borrow the money and go to college at 18, graduate, then pay the loans back over 5 years with a high-paying college-graduate job, than it is to work for 15 years at a low-paying menial job, save up, and finally go to college at age 33.
I'm sold. Put me down for $200 worth, and let me get back to you on Monday after I check to see how much more I can kick in.
--MarkusQ
P.S. And, unlike the hypothetical pure-greed investors others were talking about, I'm also doing this for the good of humanity. So I expect a proportionately larger cut when we liquidate Microsoft (God, I love the sound of that)
I wouldn't be surprised if that film actually wins best film.
Are you a constant victim of practical jokes or something? Do people pop-out from behind corners and scream "AHHH!H#$!" five times a day? Does your girlfriend leave out pregnancy tests in the bathroom with two lines hastily drawn with a Bic pen? I'm guessing so. Dave, for your own sanity, fix your life so that if SoaP wins Best Picture it surprises you!!!
my blog
You've obviously never worked an internet helpdesk. User Friendly is bloody great.
The simple answer is that this scenario won't happen. It is ridiculous.
So what does getting this into a Business Week article accomplish (apart from selling copies of BW, which always gets a boost from companies like Microsoft on the cover)?
It's called "positioning:"
It suggests management could turn a few financial knobs and create a ton of shareholder value.
It creates an artificial boogie man in the form of extreme changes that will never happen, so when the financial knobs get adjusted it is seen as very conservative.
It paints Microsoft as a kind of "sleeping giant."
The real question for Microsoft is "Why did you stop using the 'creative destruction' model of delivering customer value?" Microsoft used be the terror of the technology business by putting workstation, minicomputer, and mainframe capabilities into PCs. Now they cosy up to Hollywood instead of being disruptive, and they wonder why the old magic no longer works.
Microsoft is dong some things right, but these follow the established model: Microsoft Office Live Communications Server will replace PBXs. Big old expensive machines out, Windows servers in. If Microsoft was that disruptive to the media businesses, then they would have their groove back.
I wrote parts of this stuff
12 billion profit with only 60,000 people? That is like 200,000 dollars per head profit. How many other firms with over 10,000 people can do that? Considering the average salery is bound to be like 100k or less, they are doing great on that front. Whatever those guys are doing, from the aspect of profit they are doing it right.
I think IBM makes like 8 billion with 200,000+ people (or like 40k profit per head). That is nearer the industry average.
I don't think MSFT has far too many people, though any firm in the world that is as old as MSFT is bound to have some fat.
At least he's not as unnecessarily vulgar as "Penny Arcade", unless the vulgarity is the humor. We seem to have been indoctrinated into a culture where a joke could be funny at its nature, but add a few swear swords and suddenly it's hysterically funny. I never understood that one, which I guess explains why I don't think PA is funny. Besides, "funny" and "vulgar" are completey subjective concepts, aren't they? Different strokes, I suppose. I agree with your sentiment, however. Apparently, people with mod points seem to disagree.
Oh, and you obviously have never worked in Tech Support if you can't associate with UF.
The Overrated mod is for reversing inappropriate, positive mods, not for voicing disagreement with a post.
Given fluctuations, you'd need not only around $300,000,000,000.00 dollars USD to buy up the shares, you'd need a majority of shares, which means both Bill Gates and most of the major shareholders would have to sell (or want to).
It's much more likely that Gates et al would decide to take Microsoft private instead, lowballing income and increasing expenses to make it look less profitable, so that other shareholders would sell to them at a discount, then after a few years bring it out for a public IPO again, after spinning off various units.
But since much of Microsoft is in literal cash (short term debt notes, corporate, Canada treasuries, etc.), even that is not that likely.
If I thought they were going to go private, I'd be buying them up. I made the money for the downpayment (20 percent) of my first house by buying and selling MSFT on publicly available information in trade magazines, after all.
And I'm not. Buying that is.
Much more likely that Intel would be LBO'd, IMHO.
-- Tigger warning: This post may contain tiggers! --
But what exactly are they inventing with that R&D money? New GUIs and MP3 players? Oooh, yeah, important stuff indeed.