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Microsoft Corp.
Talk About Throwing in the Towel...

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By jonkai
July 21, 2004

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Talk about throwing in the towel, the only time a company should hand out a one time special dividend is when they admit that there is no more areas to grow into, no way of doing better than Cash, no way to invest it better than bonds. I guess we have to hand it to them for admitting it, except for the fact it took them six years to figure it out.

So the special dividend will reduce the actual stock price, and shareholders are getting cash instead of MSFT stock, which Microsoft admits is better than owning MSFT stock it appears.

The $30 billion buy back over 4 years (notice it says up to $30 billion) is what I suspected, a dilution buy back, or what they have already been doing for the last 4 years; it will only be buying back the dilution debt that is coming in the next 4 years, as it was for the last four years.

Here is some hot news for the less than fully researched MSFT shareholder. During the last 4 year's 10 Ks, MSFT repurchased $23.525 billion dollars worth of stock, yet the price of the stock never did anything but go down...why? The Basic outstanding shares has GONE UP during this time, so MSFT spent all that money buying Diluted shares from ESO's rather than creating value for the shareholder.

There is still almost exactly 900 million ESO's outstanding with strike prices less than $33 a share, all due in the next 4 or so years (which will be adjusted down to $30 strike prices a share after the one time dividend) as of the last 10-K. That means if MSFT were to buy stock to equal all the dilution coming in the next 4 years of 900 million shares, at the presumed new price of $30 a share for MSFT, it would need to spend almost $27 billion of the $30 billion just for the dilution that is coming...(and remember, I'm not including actual stock grants of 4 million or more that has been done in just one year of 2003, and more in the next 4 years.)

So the $30 billion will just barely cover dilution, you may even see the basic share count actually increase again as it did in the last four years...what does that mean? As I said, the $50 billion cash horde was a transfer of money from shareholders worth of shares thru dilution to the employee Cash horde, and now they are simply placing it back into the share price/one time dividend. It means that shareholders are just now starting over from scratch from where they were 6 or more years ago. A net no gain for you, and it looks like a continuation for the next four years too.

The real dividend is going to now be 1%, which should also keep the shares somewhat stable, since it will cost MSFT about $3.2 billion a year, which is what the ESO's will bring in when they are exercised. So MSFT true earnings will be very important now...the question still remains, can MSFT's piddly true earnings of about $4 billion to $10 billion sustain a market cap of $300 billion?

Very scary when you think about it....

jon.


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