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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 $6.6bn of wasteful research and development expenditure. The bloated workforce of more than 60,000 could be slashed, to the point where the huge resulting increase in cash flow would at last permit the company to borrow mega-billions.' Business Week, though, begs to differ: 'practically speaking, it's not going to happen,' and quotes Daniel Primack: 'Snakes on a Plane will win a best picture Oscar before Microsoft gets acquired by LBO firms.' What do you think?"
All the software companies in the world, and the FOSS communities, should buy Microsoft, free all its IP under a FOSS license, and dissolve the company. This will at last allow real innovation to take place in the industry.
Cut the workforce ? Cut the R&D ? Make billions more ? Why do the black suits only want more money ? Humans can't eat it, dammit !
Please let my shiny Microsoft live like that, with their beautiful innovations, solid products and work schedules respectful of the family. *grin*
Is Microsoft defending against this notion through it's stock buy back plan? I would presume that would give more voting shares to the current Board of Directors, who could then vote against new management; but perhaps that is an oversimplification.
What other reasons does MS have to repurchase it's stock? I don't understand the benefit that this gives to a company.
Do they feel that their stock is undervalued now, so by repurchasing it they can sell it later at a better price, and thereby acquire more financial resources?
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$tar -xvf
Think about all the advancements that came out of Bell Labs, before it had a need to be more "efficient".
The plan would be to bleed them dry for a few years, pocket the cash, and by the time the no R&D's caught up with them, they've stripped and sold the carcass and moved on. This happening to Microsoft sounds too good to be true, really.
I'm scared of numbers that can't be written as a fraction. It's an irrational fear.
To the buyout firms that is.
What happens in a Leveraged Buy Out is the firm/s would loan money from the bank, making the FUTURE possesion as collateral. Thus the debt will be sadled by the target firm. Meanwhile the raiders/vultures as they usually called(especially KKR) will strip the company, sell it's asset and then sell the firm. Pocketing profits, while the firm itself pocket the debts, not them. These of course has destroyed companies and unnnecessary slashing jobs.
Lately, their newest tactics is they will loan even more money from banks.. to PAY THEMSELVES as FEES for buying the firm. Pocketing up t hundreds of millions. Guess who's taking the debt..And it's all completely LEGAL.
There's been some rumbling within the EU Adminitration about well reviewing the law. So far its up to nought.
While the EU politician aren't in the pocket of businessman/ corporations unlike "some" paragon of "freedom" and "fair play", it is encredibly beraucratic.
There's 8% free float of MSFT in the market.. which the buyout firms can easily buy. 52% in instituition, this is harder to buy but still institutional managers are'nt going to say no to 15% or 20% premiums. Thats quite enough to override the minority shareholder.
Lest you think 300 billion plus is a big number, the trends these days are for buyout firms to gang together. And getting the money wouldn't be hard.
That said though I'll doubt there's going to be a buyout. (Purely my assumption) Gates and Co certainly will have Class B shares. Class B shares are shares that have higher voting previlege/power than normal shares. E'g GOOG class B shares have 10 times voting power than Class A/normal shares.
Timang tinggi tinggi
parang sudah asah
alang alang mandi
biar sampai basah
maybe. http://www.imdb.com/title/tt0071494/
i haven't seen either, but i googled fer de lance for the ballmer comment below, and this hit came up.
mod me down. i'm on a bad streak anyways.
...For the beast had been reborn with its strength renewed, and the followers of Mammon cowered in horror.
Exactly. Any reasonable person can see that its 100% infeasible for this to ever happen. I would think that a professional journalist for the Financial Times wouldn't be so blind, but I stand corrected. At least it will sell some subscriptions.
Google stands a better chance of a buyout than Microsoft (I'm not saying this would happen either). Google has a smaller market capitilization (around $120 billion) and has unrealized revenue in the form of "evil". Seriously, an "evil" Google would be much more profitable than an non-evil version because evil is just so lucrative. On the other hand, no has ever accussed Microsoft of not being evil enough -- I doubt there is much room for growth.
Having worked at Microsoft, mostly because I desperately needed the money rather than actually wanting to work there, I can honestly say they do have some cool stuff used internally which they SHOULD push out to the general public.
Some of the best are their test automation tools which made it a breeze to do work there. With a push of a single button, I could automagically reinstall Windows on 100 machines simultaneously, have it automatically start different automated tests on each machine, upload the results to a central server, and have those results parsed for any problem that came up in the tests.
Of course, the public will never see tools anywhere near like that. Even if they could make it so that Windows wouldn't be pirated, their management is so dense and top-heavy that they can't manage their way out of a paper bag. Mini-microsoft is right, they should thin out their management.
As the GP said... he needs to brush up on his economics. The parent is exactly right, the only things that typical companies that show profits can do with their money are:
1. give dividends to investors (boosts stock appeal and encorages stable pricing which...)
2. improve the companies credit rating so that the company can...
3. borrow money at extremely low rates so that they can...
4. lend the money at higher rates and...
5. make more money so that they can...
6. GOTO 1
The benifit of this system is that it keeps the money circulating in the economy. If MS did not borrow and lend, their billions would be out of circulation and our economy would suffer far more than most people realize.
Essentially what huge companies with great credit ratings do is provide extremely low risk investments for lenders and thier customers. So if I buy a low risk (low yeild) CD or bond, the bank I bought it from would then lend that money to someone like MS for a slightly higher rate than they are paying me. Without large, stable, profitable companies like MS taking loans, the returns of my low risk investments must drop as the bank cannot afford lend my money out at those low rates due to increased risk in the loans they issue. Therefore I lose.
If I could stand being any nerdier than I already am, I think I would have gone into econ. Econ is like an infinately variable application... make one minor change then predict how the ripples will effect something completely unrelated.
For example, there are many economists that belive that outsourcing our jobs is actually going to improve our economy and employability once the system has run its course? Sure it's counter intuitive... but with a clear mind and some creative thinking you can see how this might occur.
Sometimes the best solution is to stop wasting time looking for an easy solution.
> I can't stand people who call having a big R&D budget wasteful.
Indeed. The attempted hostile buy-out back in the eighties that forced Goodyear to sell off large portions of their R&D (in order to finance a stock buy-back to evade the buyout) was one of the worst things that had ever happened to that company, and similar R&D cuts would be even worse for Microsoft, since they are after all inherently a technology company, making R&D even more important.
Microsoft does have plenty of waste, but R&D isn't where the real fat is there.
OTOH, a hostile buy-out of Microsoft, while it would be bad for Microsoft, might be good for the rest of the world, because it might let some of the competition close the gap a little, which, given the way Microsoft takes advantage of its monopoly position, would surely be a good thing for many.
Cut that out, or I will ship you to Norilsk in a box.
You joke, but it's not that bad an idea. One of these days, some private group of investors is going to look at the mineral wealth sitting under the ground and the sea in Nigeria, compare that to the cost of invading the country and running things, and come up with math that says it could be profitable. When that happens, we'll be one step closer to a cyberpunk world.
God invented whiskey so the Irish would not rule the world.
Consider the amount the hypothetical LBO group would anticipate making --
Let's look at the Microsoft balance sheet ...
For starters, they would plunder the $34B in cash and short-term investments that Microsoft is sitting on. They could easily extract $26B and not damage the company in the slightest.
Next, check the income statement -- there are lots of large numbers that are hiding (and doing a poor job of it) ginormous amounts of waste, like $12+B per year in Selling/General/Admin. Expenses -- ExxonMobile, with a network of sales outlets and sales on REAL products (not bits) of more than 8 TIMES Microsoft's "puny" $44+B per year (XOM raked in $358+B last year) only spends $14+B in Selling/General/Admin. Expenses, so Microsoft has buried a boatload of sins in that particular vault. I expect there's probably $10B per year that could be extracted from that area without harming the company one iota.
And how can a company that spends $6+B per year on R&D have so little to show for it? There's easily $5B per year that can be extracted there, and to be perfectly reasonable, nearly all of it could be eliminated. It doesn't take $6B per year to copy Apple.
And don't forget that today Microsoft, while wasteful and poorly-managed in the extreme, still manages to rake in over $12B per year in net profits. So with just a few obvious changes to make the company more shipshape, it could be generating an immediate repayment of $26B with profitability improved to almost double what it is today, yielding over $27B in recurring profits to the hypothetical LBO partners each year.
And there you have an immediate repayment of $26B, with a recurring $27B per year that gets kicked back to the buyers. If they takeover the company during the next recession, hold it for the 3 years or so until the global economy is at a short-term peak (collecting $27B per year on their investment of $312B - $26B in immediate cashout of retained earnings, or a net investment of $286B, only about 10%, but certainly not chicken feed, and there's likely to be a lot more fat that can be trimmed from the bloated Microsoft financials). Then take it public again, reselling it at something like double their purchase price, based on the doubled profitability.
Doubling $300+B in 3 years is not to be sneezed at.
But returning to who would have the where-with-all to accomplish such a feat, it's a pretty short list. Maybe the Dubai folks, or some other oil-rich group, whose coffers must be overflowing with the revenue from $70/bbl oil.
Sure, it's mind-boggling, but it makes great sense.
A more likely outcome is for a corporate raider (or group of raiders) to purchase a large, quasi-controlling interest in Microsoft, and make the changes that need to be made, then re-sell their shares as the stock price soars on doubled profitability and nice dividend payments. It is not necessary to take a company private to obtain a controlling interest.
And with 30 billion on hand, they are in a lot better shape than most of those "conglomerates." The notion that a more efficient microsoft would be one that doesn't "waste" all that money on R&D for new products, doesn't employ all those programmers, and is in hock for, oh let's say half a fucking TRILLION dollars is simply insane. These are simply bankers and lawyers whining because they do not get their piece of the biggest pie ever baked.
Microsoft IS a bank. Imagine the next windows comes out - they've worked the bugs out of the media player DRM and applied that technology to a Microsoft wallet type program. Now they offer the incentive to every home user - FREE WINDOWS with your next system! Buy Vista Longhorn with the Megahard wallet program and get an instant rebate in the form of, say, $250 (the price of Vista Longhorn with the Megahard wallet program) pre-stuffed in that wallet which you can spend at virtually any online retailer. What's more, even if you don't have a bank account you can purchase more credits in your megahard wallet buy picking up cards at any of thousands of participating retailers in denominations of 25, 50, 100, 200 and 400 dollars for an additional fee of only $2.95.
They could do that with the cash they have on hand, now - no need to go into debt. And they would quickly own online commerce... say bye-bye, paypal.