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Discussing a Private Buyout of Microsoft
Posted by
Zonk
on Fri Aug 25, 2006 02:59 PM
from the that's-quite-a-deal dept.
from the that's-quite-a-deal dept.
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?"
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Memorable Quotes: (Score:3, Funny)
(The funny thing is, I can easily imagine him delivering this diatribe as he swings a chair menacingly...) ^_^
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Come on! 10X Bigger than the Biggest Ever? (Score:5, Informative)
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 $312 Billion.
Do you think that an LBO of 10X the previous record is going to happen? I think not.
I like the comparison of Best Picture Oscar and Snakes on a Plane. Seriously though, I wouldn't be surprised if that film actually wins best film.
Re:Come on! 10X Bigger than the Biggest Ever? (Score:5, Funny)
On Surprises (Score:5, Insightful)
Are you a constant victim of practical jokes or something? Do people pop-out from behind corners and scream "AHHH!H#$!" 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!!!
Re:Come on! 10X Bigger than the Biggest Ever? (Score:5, Interesting)
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.
Re:Come on! 10X Bigger than the Biggest Ever? (Score:5, Funny)
And if you did want such a thing, you would have bought a Mac two years ago.
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Interesting... (Score:3, Informative)
SoaP (Score:5, Funny)
Re:SoaP (Score:5, Interesting)
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.
In My Humble Opinion... (Score:4, Funny)
"...tak[ing] the axe to Microsoft..."
is a good start.
Re:In My Humble Opinion... (Score:4, Funny)
Snakes on a Plane will win a best picture Oscar (Score:5, Insightful)
And then... (Score:5, Insightful)
"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.
Re:And then... (Score:4, Insightful)
Re:And then... (Score:5, Insightful)
Apple could do that *now*, if they'd sell MacOS for commodity systems.
You're both wrong. MS's monopoly is not dependent upon the quality of their OS compared to other vendors as much as it is upon lock-in and market position. Apple can't compete outside its vertical monopoly unless they can get OEMs to pre-install. OEMs won't pre-install because MS will kill their entire Windows business with discriminatory pricing and that means they're betting the company on the single, unlikely possibility that all the lock-in strategies MS has built into Windows won't work. At the same time Apple is betting their company on the same since they are then decapitating their hardware business and most of their profits.
In short, for both Apple and at least two other, major companies to all take such a huge risk is highly unlikely and could very well get whoever made such a risky decision sued to oblivion.
Re:And then... (Score:5, Insightful)
Re:And then... (Score:5, Interesting)
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.
Re:And then... (Score:4, Informative)
Re: (Score:3, Insightful)
Re:And then... (Score:5, Insightful)
Re:And then... (Score:4, Insightful)
Re: (Score:3, Interesting)
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)
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private equity not long-term (Score:5, Insightful)
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.
Wha? (Score:5, Insightful)
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 . . .
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If they cut R&D spending, what are they going to use all that borrowed cash for?
Buyouts of smaller companys?
Microsoft already has ~$35 billion floating around that they could spend on buying up other software outfits.
The only people
Count me in! (Score:4, Insightful)
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)
It IS about maximizing profit. (Score:5, Interesting)
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.
Re:It IS about maximizing profit. (Score:4, Interesting)
In comes the the private equity firms and buy the company outright. They usually do this with the investors money and not banks. Usually these are hedge funds that have a huge pocket book with money to burn. So they buy this undervalued company. The first thing they do, like the article says is issue a dividend. The dividend is given to the investors and thus they have a good return. The dividend is added as debt to the company, but because the company is a cash cow it can support the debt without flinching.
The company that is a cash cow has debt, and is issuing dividends. This is interesting for investors because investors like good dividends. Thus the stock price increases, and the original hedge fund begins to sell their original investment making yet another profit for the investor. People would buy the stock for the dividend and the perception that the company is going to grow.
So does that mean that the stock investor that bought in at a higher price has been shafted? No, it depends what the cash cow company does. Cash cow companies do not need to be slow, but can be dynamic and grow. What the hedge funds are doing is forcing that growth. While many hate hedge funds they do force companies to work for the investor.
Here is what many people forget. If people hate hedge funds then those companies should not be on the market in the first place. The stock market has no love and thus anybody who likes the market for the employee options also has to live by the hedge fund rules.
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Some private equity firm thinks Microsoft, one of the richest companies in the world, would be better off borrowing money?!?
No, some private equity firm thinks the private equity firm would be better off using MS to borrow money, while gutting the long-
not you (Score:4, Insightful)
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.
Re:Wha? (Score:4, Interesting)
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.
Is This a Joke? (Score:5, Insightful)
And why would Microsoft need to borrow "megabillions" anyway, let alone at the cost of their workforce and R&D?
Stock repurchase (Score:3, Interesting)
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?
"Wasteful" (Score:5, Interesting)
Think about all the advancements that came out of Bell Labs, before it had a need to be more "efficient".
Never going to happen (Score:3, Insightful)
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.
Forward Into the Past (Score:5, Insightful)
The 1980's are over, and good riddance. Get over it.
Schwab
absurd (Score:3, Insightful)
This is positioning (Score:3, Insightful)
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.
60,000 Too Many? (Score:3, Insightful)
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.
Slashdot (Score:4, Funny)
MSFT might go private, but no LBO is likely (Score:3, Insightful)
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.
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Thank you for your timely suggestion regarding the future fate of Microsoft. Based on your idea, we have calculated that maximal profits over the next 10-year period can be achieved by doing exactly as you suggest.
And of course, even that is
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Microsoft IS a bank (Score:3, Interesting)