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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.
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"
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.
The 1980's are over, and good riddance. Get over it.
Schwab
Editor, A1-AAA AmeriCaptions
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!!!
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