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Microsoft The Almighty Buck

Microsoft Raises $3.8B in Bond Sale 437

Posted by kdawson from the name-is-bond-cheap-bond dept.
pfleming writes "Microsoft quietly, or not so quietly, raised some cheap cash in bond sales yesterday. For a company that already has a huge cash war chest and doesn't carry debt, what is the incentive to sell nearly $4 billion in bonds? From the article: 'Microsoft is sitting on $25 billion in cash, so the company doesn't need the bond proceeds "unless they have something big in mind," says Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business.'"
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Microsoft Raises $3.8B in Bond Sale More

Microsoft Raises $3.8B in Bond Sale

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  • Yahoo (Score:5, Insightful)

    by nicolas.kassis ( 875270 ) on Tuesday May 12, 2009 @03:29PM (#27926371)
    Obvious first idea.

    • Re:Yahoo (Score:4, Informative)

      by tcopeland ( 32225 ) <tom AT thomasleecopeland DOT com> on Tuesday May 12, 2009 @03:53PM (#27926853) Homepage

      > Yahoo

      Steve Ballmer just did a session at the Stanford Entrepreneurial Thought Leaders Seminar [stanford.edu] where he was asked about the Yahoo acquisition. He said something to the effect of "I still think it was a good idea". Who knows, maybe you're right...

      • Re: (Score:3, Insightful)

        by truthsearch ( 249536 )

        The DoJ just announced they'll be paying more attention to anti-trust issues in general (apparently a reversal of a Bush mandate). So now may be a bad time for MS to scoop up the competition, even if Yahoo is currently at a bargain price. There's now a higher chance the purchase would be blocked, or later anti-trust action could be taken if they're not careful.

        • Re:Yahoo (Score:5, Funny)

          by darkpixel2k ( 623900 ) on Tuesday May 12, 2009 @05:52PM (#27928909)

          The DoJ just announced they'll be paying more attention to anti-trust issues in general (apparently a reversal of a Bush mandate). So now may be a bad time for MS to scoop up the competition, even if Yahoo is currently at a bargain price. There's now a higher chance the purchase would be blocked, or later anti-trust action could be taken if they're not careful.

          The DoJ just announced they'll be paying more attention to anti-trust issues in general. So now may be a good time for MS to bribe a few government officials...

    • Re:Yahoo (Score:5, Funny)

      by eln ( 21727 ) on Tuesday May 12, 2009 @04:02PM (#27927041)

      But they could buy Yahoo for the change in Bill Gates' couch cushions. If they wait 6 months, they could buy Yahoo from the change in Steve Ballmer's couch cushions. Maybe they're planning on buying the Justice Department outright to avoid any future "misunderstandings".

    • The whispers are saying, "VMware". (Score:5, Interesting)

      by Anonymous Coward on Tuesday May 12, 2009 @04:03PM (#27927073)
      "VMware" will announce its first layoffs in June. Microsoft is now hovering like a vulture, waiting to scoop up "VMware".

      Microsoft does not want to spend its cash hoard of $25 billion when the interest rate on bonds is essentially at zero -- relative to inflation.

    • Re:Yahoo (Score:5, Interesting)

      by fm6 ( 162816 ) on Tuesday May 12, 2009 @04:41PM (#27927769) Homepage Journal

      Some relevant numbers:

      Yahoo Market Cap: $21B
      Current Microsoft cash reserves: $24B
      Last MS offer for Yahoo: $44B

      Against numbers like these, it's difficult to see how Microsoft having, or not having, an extra $3B, would make any difference. Either way, they'd have to borrow at least half of the purchase price.

      I suspect that the Microsoft CFO is just playing the usually games that CFOs play. These guys are always shifting money around. When you've got that much cash, you can't just leave it in a bank account — even minor tweaks in the way you stash it can save you (or cost you) millions.

      One possibility: they're borrowing money at a low interest rate in order to retire debts that are carrying a higher interest rate.

    • Obviouser (Score:5, Funny)

      by denzacar ( 181829 ) on Tuesday May 12, 2009 @05:23PM (#27928507) Journal

      Hookers and blackjack.

    • Re: (Score:3, Funny)

      by guyminuslife ( 1349809 )

      GM.

      Or, as we will know it, "Microsoft Cars."

  • The name is... (Score:5, Funny)

    by Geoffrey.landis ( 926948 ) on Tuesday May 12, 2009 @03:30PM (#27926381) Homepage
    The name is bonds... Microsoft Bonds.

  • Question (Score:2, Interesting)

    by egr ( 932620 )
    Where can I buy this bond?

  • SAP (Score:4, Insightful)

    by twistedemotions ( 231376 ) on Tuesday May 12, 2009 @03:30PM (#27926397)

    German software company SAP appears to be a possible target.

    • Re:SAP (Score:5, Funny)

      by revlayle ( 964221 ) on Tuesday May 12, 2009 @03:34PM (#27926493)
      The only positive of that, is MAYBE MS would kill off Business Objects once and for all (yes, I know, a pipe dream)

    • Re: (Score:2)

      by Churla ( 936633 )

      Of all the possible targets I would have to say this one has a lot of solid reason behind it.

      They want to be the "software for everyone" and that means running businesses. One reason the PC took off over the Mac was that many people used PC's at work, so used them at home. Make sure people see lots of Microsoft at work, they will be more likely to run it at home.

    • Re:SAP (Score:5, Funny)

      by Deag ( 250823 ) on Tuesday May 12, 2009 @03:44PM (#27926683)

      No no they are building the solar train, the numbers add up.

    • Re: (Score:3, Insightful)

      by rackserverdeals ( 1503561 )

      Even IBM won't buy SAP [cnn.com] and I think it's unlikely that MS would. Or at least I think it would be a bad idea.

      SAP doesn't look like a good buy. SAP stockholders would want a premium over it's current share price and at 48 billion bucks it doesn't look attractive for a company that only has only $16 billion in annual revenue.

      It's not a big discount like other companies, such as Sun, that really took a beating recently in the market.

      The Oracle/Sun deal might hurt SAP but with their revenue and profit it's still

    • Just thinking about it, SAP might be a target. BUT, in light of Oracle's buyout of Sun, I could see them going after several targets. Dell might be a better one to go after.

  • My theory. (Score:5, Funny)

    by Capt.DrumkenBum ( 1173011 ) on Tuesday May 12, 2009 @03:30PM (#27926399)
    8 Billion to buy Sun out from under Oracle.
    The rest for the antitrust lawsuits.

  • Buyout? (Score:5, Funny)

    by Xoron101 ( 860506 ) on Tuesday May 12, 2009 @03:30PM (#27926401)
    Maybe they want to buy GM?

    • Re: (Score:3, Funny)

      by ausekilis ( 1513635 )
      Just what we need, Microsoft Hummer.

      First they were big, resource-intensive, and used by people oblivious to what's around them. Now they'll blue-screen at the drop of a dime or pop up a dialog for you to confirm you really meant to use the brake pedal.

    • Re:Buyout? (Score:5, Funny)

      by Locutus ( 9039 ) on Tuesday May 12, 2009 @06:13PM (#27929153)

      so they can finally build that perfect Microsoft Car... As the story goes, it would work like this:

      1. For no reason at all, your car would crash twice a day.

      2. Every time they repainted the lines on the road, you'd have to buy a new car.

      3. Ocasionally, when executing a maneuver such as making a left-turn would cause the car to shut down and refuse to start, and you would have to reinstall the engine. ...well, you should know the rest of the gig.

      LoB

  • Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money given an extremely rough competitive landscape seems to be the worst decision made in the history of the company.

    • Re:That's just fiscally stupid. (Score:5, Insightful)

      by Geoffrey.landis ( 926948 ) on Tuesday May 12, 2009 @03:35PM (#27926513) Homepage

      Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money...

      Because debt is really cheap right now.

    • Re: (Score:3, Insightful)

      by FooAtWFU ( 699187 )
      Actually, Microsoft can probably get a pretty good deal on debt, considering how safe they are and how risky everyone else looks. This is a way to exploit an advantage they have right now, and they can wait for a chance to use it in the future. They must think that the interest on a bond must be cheaper than waiting (or waiting-and-spending-their-own-cash. since cash is a handy buffer and a hedge against risk in These Turbulent Economic Times (tm) and possibly worth it.)

    • Re:That's just fiscally stupid. (Score:5, Insightful)

      by jayhawk88 ( 160512 ) <jayhawk88@gmail.com> on Tuesday May 12, 2009 @03:51PM (#27926815)

      I'm guessing that Microsoft has about 4 dozen guys that know so much about finance, they would literally make you slit your wrists should you ever be matched up against them in a test of financial knowledge. Maybe, just maybe, they know what they're doing more than some random dude Slashdotting from work.

    • Re:That's just fiscally stupid. (Score:5, Funny)

      by Red Flayer ( 890720 ) on Tuesday May 12, 2009 @04:00PM (#27927015) Journal

      Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money given an extremely rough competitive landscape seems to be the worst decision made in the history of the company.

      Actually, now is a great time to issue bonds. Interest rates are extremely low (particularly for well-rated bonds which MS bonds assuredly will be) so if they can expect even a modest return on the bonds, they'll do well.

      My gut tells me that this is a hedge against inflation, not a cash-raising effort for some diabolical plan.

      On the other hand, this may be part of Gatus's effort to collaborate with Joba to create the One True OS with Global Web Search in order to stop Googol the Destroyer.

      When last we saw our heroes [slashdot.org] they had embarked on their quest to stop Googol the Destroyer and his infernal plan to invoke the End of Days via the Rite of a Million Targeted Ads, but the rogue druid Stallmanx was hampering their efforts by biasing the common sorceror against them.

      "Joba," the Oracle at Redwood Shores proclaimed, "You must harness the power of all the sorcerors of the land to stop Googol. Only by having them all contribute to the One True yada-yada can you stop Googol. I have spoken!"

      And so Joba consulted with Gatus. "Gatus, how can we get all the other sorcerors to contribute? They don't like us, that bearded wretch Stallmanx has turned them all against us."

      Gatus thought and thought, but in the end he resorted to his base nature... "I will buy the sorcerors we need! I'm short of cash though, I need another 5 billion. Maybe I could issue some bonds.".

      Intrigued, Joba responded. "Yes, you can buy the greedy ones. I can use my powers of seduction and envy to make them all want to be like me. Yes, I will subvert the Ministers of Fashion to convert the low self-esteem rabble to our cause."

      And so Gatus and Joba began to plan.

      Meanwhile, the crack team of evil underlords at Google were busy with their database of potential ways for the world to be saved, and developing their counter-strategies. The acolytes of Googol the Destroyer were busily releasing the Webcrawling Spiders of Damnation upon the world, to catch information to sacrifice to their terrible leader, who devoured data with great appetite and gobsmacking satisfaction.

      But Stallmanx is quiet... what is he working on in his secret laboratory? What nefarious ritual is he preparing to thwart our heroes? Will Joba and Gatus be able to overcome his resistance? Will we ever find out what wonders lie beneath the surface of Stallmanx's Beard of Druidic Prowess? Can Googol the Destroyer be thwarted?

      Tune in to next week's episode of Google the Destroyer!

    • Re:That's just fiscally stupid. (Score:5, Interesting)

      by Ungrounded Lightning ( 62228 ) on Tuesday May 12, 2009 @04:22PM (#27927429) Journal

      Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money ...?

      Perhaps they're expecting significant inflation, or even hyperinflation [wikipedia.org], of dollars (as is everybody with the least clue about the theories of the Austrian school of economics.)

      Interest rates are massively depressed by the "printing press money" currently pouring out of Washington. The expectation that the money will devalue drastically over the next couple quarters to couple years (especially now that China has stopped buying US bonds). Meanwhile the artificially depressed (compared to borrowing only savings) interest rates continue the diversion of "stuff" from where it can build infrastructure to make a future profit and into either projects that can't be finished or won't have customers when they're done or immediate consumption. This turns a recession into a depression. It's exactly what happened to create the Great Depression, but the government is doing it more this time around and with no safety net from a gold standard - so the US could end up more like Weimar Germany than the US of the '30s.

      If you believe that, the logical thing to do is to grab some of the dollars at the low interest rate before the inflation gets figured into their price and use them to buy assets that won't inflate or disintegrate in a depression. Pick off undervalued resources - commodities, potentially profitable companies, etc. Then when the inflation hits, cash things like your gold reserves and pay off the notes in inflated dollars.

      To give you an idea of what hyperinflation is like: In the first year and a half after the Treaty of Versaille's reparation section took effect, the money inflated so much that, were it to happen here, a $200,000 mortgage could be paid off completely for the price of a slice of toast. (Over 9 years it inflated by a trillion-to-one, before they instituted a new money that was more solidly backed.)

      = = =

      Then again:
        - Maybe they see an acquisition target and need a bit more cash.
        - Maybe they ARE, or expect to become, an acquisition target (due to the cash reserves and an expectation of a stock price drop) and are working on looking less attractive. B-)

      • Re: (Score:3, Interesting)

        by twostix ( 1277166 )

        Companies did this right before the big crash in 1933. Markets appeared to be rallying and capital became available again so companies got a hold of as much as they could before it all went to hell.

        And went to hell it did.

        People who think that in the current atmosphere companies are looking to embark on dangerous and expensive new acquisitions or projects rather than trying to simply get into a position to protect themselves for the next few years appear to have no idea of how unsteady things are in the va

    • Re: (Score:3, Insightful)

      by Foredecker ( 161844 ) *

      MSFT can make more money investing its existing cash. Its the same kind of trade off an individual may make: Do I invest my money? Or pay down my mortgage? if you mortgage rate is very low, then it makes more sense to invest your cash.

  • Perhaps they want to show debt for some reason? (Score:4, Insightful)

    by erroneus ( 253617 ) on Tuesday May 12, 2009 @03:32PM (#27926447) Homepage

    While it may be true that they just want to buy something big (like politicians, judges, executive-branch officers) what if they merely wanted to show that they had X amount in debt for some other reason like taxes or some such thing?

    • Debt doesn't play into taxes - paying interest on the debt does to some extent.

    • Also - how would it not help their stocks if they are now perceived as up to something big?

    • Re: (Score:2)

      by chamont ( 25273 ) *

      They're buying the USA. 30 billion is overpriced for us right now.

      • Re: (Score:3, Interesting)

        by jd ( 1658 )

        There needs to be a "-1 sad but +1 true" mod option.

  • Incentive (Score:5, Interesting)

    by DoofusOfDeath ( 636671 ) on Tuesday May 12, 2009 @03:33PM (#27926451)

    It may be that they're hedging their bets against a possible dry spell in their business. Better to get the cash now, while their bond rating is good and they can get a low interest rate, than trying to issue bonds when they're not looking so hot.

    • Re: (Score:3, Insightful)

      by cabjf ( 710106 )
      So they wait until after Vista and in the middle of the recession? Is this a bet that Windows 7 somehow might not deliver like they want or need it to? I think they're looking to do something with the money, not sit on it for a rainy day.

  • Simple (Score:5, Interesting)

    by overshoot ( 39700 ) on Tuesday May 12, 2009 @03:33PM (#27926461)
    Right now, it's money for nothing and the stock market is way down. Buy stocks with cheap money, and a year from now the ROI is great.

    Of course, they may also be starting their business model conversion, a la Control Data Corporation. The software monopoly may not last forever, after all, and this is a cheap way to hedge their bets.

    • Re: (Score:3, Interesting)

      by Darth_brooks ( 180756 ) *

      Pretty much. I think in terms of the markets, everyone is slowly coming to the conclusion that we're not going to be moving to the "gold bar, shotgun shell, and hard liquor" currency standard any time soon. Now everyone's looking to turn a few bucks.

      Besides, with so much cash on hand Microsoft bonds are just ungodly attractive. Especially after the past few years of "these 15,000 crappy mortgages bundled together are a totally sound investment, we swear!" or "Of course GM and Chrysler are going to make good

  • Refunds (Score:3, Funny)

    by Anonymous Coward on Tuesday May 12, 2009 @03:33PM (#27926463)

    The Bonds will fund refunds for Vista, and Windows 7 from consumers who want to downgrade to XP, or upgrade to Ubuntu.

  • Moon base (Score:5, Funny)

    by Reality Master 201 ( 578873 ) on Tuesday May 12, 2009 @03:34PM (#27926479) Journal

    They're moving off planet to avoid problems with anti-trust regulation. Also, chairs thrown from the moon will have much greater impact on earth based targets.

  • Their cash pile is dropping (Score:5, Insightful)

    by mangu ( 126918 ) on Tuesday May 12, 2009 @03:34PM (#27926487)

    $25 billion seems like a lot, but it used to be more than that [seattlepi.com].

    The important thing to note here is the trend, not the current value.

  • What "Cash"? (Score:5, Insightful)

    by AK Marc ( 707885 ) on Tuesday May 12, 2009 @03:35PM (#27926519)
    No company sits on cash. They don't put it under a mattress. They invest it. If they are making 5% more in investing than the bonds cost, then why not borrow to invest? I've seen other huge companies borrow to invest, and there are whole classes of scam-sounding TV commercials about get rich quick with nothing down that are exactly that.

    Other than that, there is no real reason to raise capital, unless they had an accountant that made them bid for cash against the investment opportunity and some $4 billion project decided to just borrow externally rather than get charged against a higher rate for taking internal money. But that's internal mumbo jumbo that just goes back to the initial point above, where it's being borrowed because the cost of bonds is lower than using the warchest. There exists nothing that could tap the entire cash reserve in a reasonably short enough time to justify bonds at this point unless they were buying Bolivia or something.

    • MS Bolivia - "Where do you want to go to escape extradition?"

    • Re: (Score:2)

      by XanC ( 644172 )

      Sure companies sit on cash. It may not be bills in a mattress; it's in a savings account or something. These are called "cash accounts" because they are not investments.

  • They have a AAA rating (Score:5, Insightful)

    by Actually, I do RTFA ( 1058596 ) on Tuesday May 12, 2009 @03:36PM (#27926523)

    Microsoft has a AAA rating. At this point in time, people are desperate for a safe place to park their money. Interest rates are low. Simply by holding onto it in cash now, they're betting they can make back the interest plus some later. And if deflation occurs, woo-hoo!

    It'd be foolish not to borrow money given how cheap it is now, and how it's not likely to last at that level.

  • Its not about acquisition (Score:5, Informative)

    by Anonymous Coward on Tuesday May 12, 2009 @03:38PM (#27926579)

    Microsoft is becoming a mature company and they are operating like one. The will use this money to repurchase their own stock while it is at a discount. They will then keep the dividends on the stock for the company. This will continue until the stock price gets high again. They will then resell the stock for a profit and resources when they need it.

    Yes, I am a trader.

    • They might be buying back stock to retire it or plop it into "treasury stock" but this is not typically stock that you resell on the open market.

    • Effectiveness of share repurchases (Score:4, Interesting)

      by schmiddy ( 599730 ) on Tuesday May 12, 2009 @04:49PM (#27927905) Homepage Journal

      Assuming share repurchasing is really the intent here, and that's not a bad guess, let me offer a contrarian view to your rosy perspective to MSFT's move.

      By borrowing dollars in the bond market to fund a share buyback, MSFT's board is effectively using borrowed money to place a wager that the market is currently undervaluing MSFT's stock. By choosing to throw their extra cash, along with borrowed dollars, at this share buyback scheme, MSFT is betting that they can predict the future better than the market.

      What would be really great is if someone had done a study of the effect of share buybacks undertaken by S&P 500 companies, to test whether they work at all. Oh wait, S&P itself [businessweek.com] has. If you're a MSFT shareholder, ask yourself whether MSFT should be using their extra cash to pay dividends [seekingalpha.com] instead of embarking on harebrained schemes like this. Actually, I take that back -- you'd probably prefer they spend money buying back their own shares and paying bond interest rather than flushing it down the Zune toilet.

  • It is not uncommon to do this.. (Score:5, Interesting)

    by Chyeld ( 713439 ) <chyeld.gmail@com> on Tuesday May 12, 2009 @03:41PM (#27926641)

    At least, the companies I've all worked for have all done business in this manner:

    Have a fairly large cash reserve which is your 'emergency' fund. When you need to aquire a company or other such big ticket item, borrow. Even if you have the cash, investors consider how you are leveraging your credit when looking at whether to buy your stock and being under leveraged is just as bad as being over leveraged (cause you are letting money that could work for you just sit idle, stunting your earnings).

  • Perhaps (Score:3, Interesting)

    by Dyinobal ( 1427207 ) on Tuesday May 12, 2009 @03:44PM (#27926687)
    Perhaps they plan to buy part of the wireless spectrum out from under the noses of google.

  • For acquisitions? Doubtful (Score:3, Interesting)

    by PPH ( 736903 ) on Tuesday May 12, 2009 @03:45PM (#27926691)
    Because of the recent changes [redorbit.com] in antitrust enforcement policy, I don't think they are planning to do too many acquisitions.

  • It's called the cost of capital (Score:4, Interesting)

    by alen ( 225700 ) on Tuesday May 12, 2009 @03:45PM (#27926697)

    and raising money via debt is the cheapest way to run a company. every project has a cost of capital usually calculated by the direct monetary cost, estimated returns, etc.

    debt with it's low interest rates is the cheapest

    retained earnings or cash in the bank is more expensive because investors expect growing earnings

    selling stock is the most expensive due to expected returns

    a lot of companies like GE have borrowed at short term rates and simply rerolled the debt every time it matured paying low rates. nice until 2008 and GE's rates shot up to almost 10%.

    • Re: (Score:2)

      by sherriw ( 794536 )

      I disagree. I have my own small business and I'm starting it slow and small from my home. I don't have a start-up loan. I put my profits in the bank and operated my business from my cash reserve.

      Seeing as my cash is earning interest for me, rather than debt on which you have to pay interest, I say that's the cheapest way to run a company. It just doesn't have the quick, instant growth you might get with borrowing a sum of money. But there's something to be said for slow and steady.

  • Incorrect assessment. (Score:5, Informative)

    by downix ( 84795 ) on Tuesday May 12, 2009 @03:48PM (#27926747) Homepage

    The article claims MSFT is sitting on $25 million in cash. This is frankly false. What MSFT is sitting on is $25 million in "Cash and Short Term Savings." In short, a combination of Cash and Stock prices, which are not being adjusted as the companies values go up and down, and do not need to be adjusted to actual street value at the present time. What they do have is $8 billion in cash on hand, down from $12 billion a year prior (as of latest SEC filing in March). If I'd lost 1/3rd of my cash in less than a year, I'd be doing a bond right now as well.

  • Money is cheap. (Score:3, Interesting)

    by feepness ( 543479 ) on Tuesday May 12, 2009 @03:48PM (#27926757)
    If I could borrow $4B at the rates MSFT is getting I'd run out and get it too. Then they invest the money later (remember they are already investing $25B) and end up with a positive return.

    This is just accountants shuffling paper. Nothing to see here.

  • Steve Ballmer's Chair Budget (Score:3, Funny)

    by ErikTheRed ( 162431 ) on Tuesday May 12, 2009 @03:48PM (#27926767) Homepage

    I'm investing my life savings in Seattle-based office furniture retailers.

  • Advertising compaign? Or...? (Score:3, Interesting)

    by yurik ( 160101 ) on Tuesday May 12, 2009 @03:49PM (#27926791)

    I can see a few alternatives:

    * Advertising
        "Windows better than everything..." advertising campaign might be one. Massive consumer bombardment with "Windows 7" ads similar to what they did with Windows 95.

    * Hardware
        Microsoft might follow Apple and Oracle, and start making their own hardware. Massively parallel chips geared towards both the vector and regular computations would be one idea.

    Alternatively, their own servers (totally not their market segment, plus they will aggravate their relationship with Dell and others, so this is less likely.

    * M & A...
        Buying Yahoo? Or better yet - Novel? That would be an interesting development. Novel has very little influence compared to their former glory, yet some of their technology (Moonlight?) might be valuable to MS. So instead of discrediting Mono project, MS might simply jump on it and start offering various open source solutions ... I know I'm daydreaming...

  • And the bond sale was a software error.

  • This is just corporate finance (Score:5, Insightful)

    by Stuntmonkey ( 557875 ) on Tuesday May 12, 2009 @03:55PM (#27926901)

    The why of this is fairly straightforward from a financial standpoint. Companies can raise money from two sources: Equity and debt. The cost of debt is obvious (the interest rate). The cost of equity is less obvious but very real: Investors demand a particular total rate of return on the money they invest in a stock, either in the form of dividend payments or retained earnings (appreciation in the value of the stock). If the total rate of return from your stock is less than what the market demands (based on its perception of how risky you are), then your stock price will fall until the desired rate of return is met. Typical long-term total return from the stock market is 9-10%, and for a tech company most investors will want more because of the perceived risk.

    Anyway, the point is that when interest rates are low, it's a lot cheaper to get money from debt markets than from equity markets. So the smart CFO will borrow money and use it to buy back (and retire) stock. If you're a shareholder you like this in net, because although the company now has debt to pay back (a liability which decreases the value of your shares), the positive impact on value from having fewer shares outstanding outweighs it. The only downside to this strategy is that interest on debt must be paid back on a defined schedule -- bond holders aren't willing to defer their payoff like equity investors are (and consequently bond investors make lower returns on average). GM is an object lesson in getting squeezed this way. Many tech companies avoid long-term debt as a result; they don't like the ongoing obligation. If anything this move by Microsoft signals to the market that they've become a stable business that is confident in its long-term ability to generate cash.

  • The truth: It's Apple (Score:5, Funny)

    by gnasher719 ( 869701 ) on Tuesday May 12, 2009 @04:09PM (#27927183)
    Apple made Microsoft a present: One iPod for every Microsoft employee. $3.8 bn is the money that Microsoft needs now to fill these iPods with music :-)

  • Darl said... (Score:3, Funny)

    by sherpajohn ( 113531 ) on Tuesday May 12, 2009 @04:20PM (#27927385) Homepage

    that's how much its gonna cost to bail out SCO.

  • It's just an intilial investment.... (Score:5, Funny)

    by lordofthechia ( 598872 ) on Tuesday May 12, 2009 @04:33PM (#27927671)

    MS is just getting enough cash to run a round of 2 million "Laptop Hunters" commercials.

    "We told everybody in the state of New Mexico, you find a laptop for under $2000, you keep it."

  • It's obvious (Score:3, Funny)

    by SnarfQuest ( 469614 ) on Tuesday May 12, 2009 @04:40PM (#27927755)

    They are going to buy SCO.

    Once the IBM lawsuit is over, they'll be getting thaat 4 bilion from the settlement, and they'll also be getting that $650 from every Linux user, so they'll be rolling in cash.

  • Comment removed (Score:3, Interesting)

    by account_deleted ( 4530225 ) on Tuesday May 12, 2009 @04:47PM (#27927869)
    Comment removed based on user account deletion

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