Discussing a Private Buyout of Microsoft 315
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?"
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.
but of course! (Score:2, Insightful)
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!
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.
Umm, okay... (Score:2, Insightful)
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?
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 . . .
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?
Re:Wha? (Score:3, Insightful)
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 who would benefit from this are the guys making the buyout. They cut MS to the bone, sell off assets, borrow money, issue dividends, then sell the stock before it can tank. After that, what do they care? They already got their dividend & sold off the stock at some inflated price.
Re:And then... (Score:4, Insightful)
Honestly, is /. getting this desperate for topics. (Score:2, Insightful)
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)
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:Wha? (Score:3, Insightful)
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-term investments in order to inflate the stock, before said firm bailed on MS, leaving MS in rough shape and the private equity firm swimming in money. You've made the mistake of thinking investors and executives are acting in the best interests of the company, instead of in their own best interests. This hasn't been the case in American business in a long time.
Re:And then... (Score:2, Insightful)
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:And then... (Score:5, Insightful)
Re:And then... (Score:3, Insightful)
Count me in! (Score:4, Insightful)
I'm sold. Put me down for $200 worth, and let me get back to you on Monday after I check to see how much more I can kick in.
--MarkusQ
P.S. And, unlike the hypothetical pure-greed investors others were talking about, I'm also doing this for the good of humanity. So I expect a proportionately larger cut when we liquidate Microsoft (God, I love the sound of that)
Re:Umm, okay... (Score:1, Insightful)
1. Buy company
2. borrow tons of money
3. now they have huge cash flow
4. sell stock at 10x what they bought the company for
5. ??????
6. PROFIT!!!
They tried to do a LBO of Disney in the early '80s when Reagan pushed through the cut in the Capital Gains Tax, which is actually a tax on this sort of shenannigans. The LBO company was going to sell off its real estate and other properties!
Other folks weren't so lucky after that tax cut; many, many people lost their jobs. At Disney, we all had our hours cut.
There is little more evil than a LBO. Even Microsoft isn't as evil.
Hey, maybe somebody could buy out Sony? (yeah, I'm a victim of their rootkit)
On Surprises (Score:5, Insightful)
Are you a constant victim of practical jokes or something? Do people pop-out from behind corners and scream "AHHH!H#$!" 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:Memorable Quotes: (Score:2, 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.
Re:And then... (Score:4, Insightful)
Re:And then... (Score:3, Insightful)
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.
Re:Memorable Quotes: (Score:2, Insightful)
Oh, and you obviously have never worked in Tech Support if you can't associate with UF.
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.
Re:And then... (Score:3, Insightful)
Re:And then... (Score:3, Insightful)
The fact is, considering how much money Microsoft takes in every year, it's amazing how little new stuff they actually put out. Almost all of their profit comes from products that are hardly different now than they were 4 years ago. They can't be lean and mean because they've never had to be. Windows and Office guarantee them a huge, permanant income stream. I think Micrsoft management would just as soon spend all that money building their own empires rather than giving it to shareholders. Look at how Microsoft resisted paying dividends, despite having more cash than they know what to do with. Gates is giving away billions from his own pocket, do you really think he lies awake worrying that some Microsofties aren't contributing to the bottom line as much as they could? I don't even blame them, I'd love to work at MS Research with backing like that. But from an investor's viewpoint it's not efficient.
Re:And then... (Score:2, Insightful)
Re:"Wasteful" (Score:3, Insightful)