Slashdot Mirror
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?"
(The funny thing is, I can easily imagine him delivering this diatribe as he swings a chair menacingly...) ^_^
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~ |rip/\/\aster /\/\onkey
The largest LBO ever completed was RJR Nabisco in 1989 for $31.3 billion. Microsoft's market cap is $260 billion. Slap on that a 20% premium and you're looking at $312 Billion.
Do you think that an LBO of 10X the previous record is going to happen? I think not.
I like the comparison of Best Picture Oscar and Snakes on a Plane. Seriously though, I wouldn't be surprised if that film actually wins best film.
Let the free market do what the anti-trust efforts failed to do? Interesting... except the only people who will benefit are the legal eagles. It sure as hell won't get Windows Vista out the door any sooner.
I think Snakes on a Plane won't win an Oscar.
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I think...
"...tak[ing] the axe to Microsoft..."
is a good start.
Hades, PoD: Official Advocate
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.
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*
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.
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?
--
$tar -xvf
And monkeys are going to fly out of my butt before M$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 /.
Think about all the advancements that came out of Bell Labs, before it had a need to be more "efficient".
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?
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.
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biar sampai basah
I'll see your Phantom and raise you one Duke Nukem Forever... shipping on said Phantom.
I'll never make that mistake again, reading the experts' opinions. - Feynman
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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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
Ah, for Pete's sake! Why couldn't you just go away? We had a nice lull fron your karma-whoring. Now we once again have to deal with your inane diatribe, uninsightful comments, idiotic anime smile (which you obviously use because you know it pisses people off), and immediate modding up by your moronic fan boys.
Wondrful. Just wonderful.
Yeah, yeah, I'm going to get modded as a troll. That doesn't mean that what I've said isn't true.
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.
Fantasies for nerds. Stuff that will never happen.
You don't have to be smart to use a Mac, you just have to be smart enough to buy one
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! --
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.