Once known as the world's richest company, Microsoft
Interestingly, Mr. Softy isn't alone. Cisco
Their timing is interesting. Most firms have used equity to raise capital after the credit markets froze during the global financial crisis. Yet now there are signs that the market is thawing. The TED spread is narrowing, and like stocks, high-yield bonds are recovering from an awful performance in 2008. Microsoft's entry into the debt market could further smooth volatility by boosting confidence.
Meet the new Oracle?
For its part, AAA-rated Microsoft is likely to raise all $3.75 billion at very attractive rates, which could be a boon for investors if executives find ways to deploy that bounty at high rates of return.
In other words, Microsoft needs to position itself to be more like Oracle.
Few in the industry can match CEO Larry Ellison's record of using leverage to his advantage. Rather than spend precious equity, the database king typically resorts to its flush balance sheet and rich cash flows to buy rivals. That's been the case with deals for PeopleSoft, BEA, and Siebel in the past, and it will be again when Oracle commits $7.4 billion to purchase Sun Microsystems.
History calls this a smart strategy: Oracle's returns on capital have remained steady -- between 16.7% and 17.8% -- as growth has soared since its acquisition spree began in 2004.
Here's your shopping list, Mr. Softy
Where would Microsoft CEO Steve Ballmer use his new corporate charge card to go shopping? The obvious choices would be business software partner SAP, which would benefit from having tighter ties to Microsoft's SQL Server database, and Yahoo!
Either deal would make sense for Microsoft's corporate customers -- partnership talks with SAP stretch back years -- but I wonder if Mr. Softy's fresh dollop of capital wouldn't be better spent building its consumer-facing business. Here are three of my best ideas:
Twitter and Facebook. Any serious run at Google
Microsoft already has close to $24 billion in excess cash. Soon, it'll have another $3.75 billion more. That's one heck of a charge card, Ballmer. Time to go shopping.
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What would you spend Microsoft's newfound debt capital to acquire? Use the comments box below to tell us what you think.