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Microsoft To Shed Billions to Buy Back Stock

   
8:59 pm on Jul 20, 2004 (gmt 0)

WebmasterWorld Administrator brett_tabke is a WebmasterWorld Top Contributor of All Time 10+ Year Member Top Contributors Of The Month



The Wall Street Journal is reporting that:

MICROSOFT WILL PAY a one-time dividend of $3 a share and repurchase $30 billion of its stock over four years, in a $75 billion move to share its cash with investors.

[seattlepi.nwsource.com...]

9:45 pm on Jul 20, 2004 (gmt 0)

WebmasterWorld Senior Member eliteweb is a WebmasterWorld Top Contributor of All Time 10+ Year Member



Why would someone do this. Im new to stock market and wonder what the incentive is. Is 3.00/share higher than what it is now?
10:03 pm on Jul 20, 2004 (gmt 0)

WebmasterWorld Senior Member ogletree is a WebmasterWorld Top Contributor of All Time 10+ Year Member



So does bill get $423,479,970 from that. I saw somewhere that he had 141,159,990 shares. Must be nice.
10:06 pm on Jul 20, 2004 (gmt 0)

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The current stock price is 28.32 [google.com] so the dividend is around 10%

Dividend is when companies have so much cash that they decide to pay it to shareholders, it's not the same as the stock price.

They do this because they have too much cash that they do not have alternative use for. If they just keep that cash, they will earn interest on it, but that interest will not mean growth for the company as such. Hence it does not benefit shareholders that the firm has tons of cash, it's only when that cash is being put to use to create growth that it will benefit shareholders. So, by keeping too much cash, the stock price of the firm will fall.

Why? Because, if that cash was in the pockets of the shareholders in stead they would reinvest it in firms with higher growth and they would benefit more from this than if MS just kept the money.

That's really a very long story that's made far too short, but in essence that's the mechanics.

10:33 pm on Jul 20, 2004 (gmt 0)

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As of May 12th, Gates has 1,117,678,329 share so he stands to gain $3.5 billion. I also read that MSFT is up $1.50 in after market trading so Gates stands to gain another $2.3 billion in net worth. It's good to be the king.
10:35 pm on Jul 20, 2004 (gmt 0)

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Maybe the boss is bailing out becuase the ceiling is caving in. Here's a way of selling his shares without frightening the market.
12:12 am on Jul 21, 2004 (gmt 0)

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From: [microsoft.com...]

MSFT: Q3 2004

Net income and diluted earnings per share for the third quarter were $1.32 billion and $0.12 per share.

Server and Tools grew a solid 19%

MSNŽ reported another profitable quarter on robust revenue growth of 16%

The ceiling is certainly not coming down. In fact, the reason they're probably doing this is because a bunch of potentially huge legal problems have been cleared up, most notably the anti-trust appeal, but also the Sun and Lindows (which was not significant from a money perspective, but very significant from a trademark perspective) suits. The cash doesn't do them any good sitting in a bank, and all of their need for that large of an amount of liquid cash has disappeared.

12:30 am on Jul 21, 2004 (gmt 0)

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Another slight twist on claus' theme is that dividends are also used by companies that anticipate little or no appreciation in their stock price. So, they pay (recurring) dividends to entice people to buy their stock and keep the price up.

Many railroads, for example, pay dividends for this reason.

I'm not saying this is the case with the MS dividend, just adding a piece of info.

12:50 am on Jul 21, 2004 (gmt 0)

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Just taking advantage of the lower capital gains taxes on dividends that went into place last year. By making a dividend, he can harvest some of his wealth from MS and pay less in taxes.

...and hurry before the Dems repeal it

2:00 am on Jul 21, 2004 (gmt 0)

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I find myself asking where all of the INTEREST thats being earned on that money goes. With $56.4 Billion in liquid cash, by my estimate they're earning anywhere from $7 - $15 million a day in interest alone.

Think about that ... Microsoft could close the doors, never sell a single product again, and still rake in $3 Billion a year.

4:25 am on Jul 21, 2004 (gmt 0)

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*works out a math problem*

If I multiply my current traffic now by 3432942394832084932493 hmmmm... divided by adsense "deflation" hmm.. yep Ill make 3 billion a year as well.

5:14 am on Jul 21, 2004 (gmt 0)

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As of May 12th, Gates has 1,117,678,329 share so he stands to gain $3.5 billion

Apparently Bill is donating his share to charity through his foundation.

No matter what you think of Microsoft, it's technology or Bill Gates personally, you have to admitt he does do a lot for charity.

8:15 am on Jul 21, 2004 (gmt 0)

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"Microsoft Corporation co-founder Bill Gates together with his wife Melinda are the most generous American donors to worthy causes, the US magazine BusinessWeek reported in its December 1 edition."

Google and you will see Bill G does his bit.

5:31 pm on Jul 21, 2004 (gmt 0)

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>> No matter what you think of Microsoft, it's technology or Bill Gates personally, you have to admitt he does do a lot for charity.

Very True ...I think i read somewhere he has plans to give back as much 90% of his networth before his death!... No other Mega-Billionares in worlds history come near this ...

I am a unix guy and have my own not so positive opinion about Windows ...but i have to admit that MS played a major role in spreading computing to the masses by way of ease of use , ease of app development and standardization ...

Its unethical monopolist polices we all hate helped to bring computing standardization (even though its forced) ...Imagine If there are 3 dominant browsers rahter than the mighty IE and think of the design nightmares it will cause :)

5:54 pm on Jul 21, 2004 (gmt 0)

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< Nevermind >
5:36 am on Jul 22, 2004 (gmt 0)

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Wait so I'm confused so the company can decide weither to pay out it's share holders? The board decides If its right?
6:14 pm on Jul 22, 2004 (gmt 0)

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Wait so I'm confused so the company can decide weither to pay out it's share holders?

Technically, when you buy a share of Microsoft, you're buying a share of their cash stockpile too.

The board just decided that the company didn't need such a huge stockpile, so they are giving it to the "owners."

Stockholders still get to keep all their shares, they just get a check for $3/share.

10:23 pm on Jul 22, 2004 (gmt 0)

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Very True ...I think i read somewhere he has plans to give back as much 90% of his networth before his death!... No other Mega-Billionares in worlds history come near this ...

That's the way to do it. May as well use your money to do as much good as you can while you're here - won't do you any good after your death.

Although how does he know when he is going to die - has he seen the future :)?

5:56 pm on Jul 23, 2004 (gmt 0)

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I find myself asking where all of the INTEREST thats being earned on that money goes. With $56.4 Billion in liquid cash, by my estimate they're earning anywhere from $7 - $15 million a day in interest alone.

Think about that ... Microsoft could close the doors, never sell a single product again, and still rake in $3 Billion a year.

You're not going to make that off 1 year T-bills.

6:17 pm on Jul 23, 2004 (gmt 0)

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You're not going to make that off 1 year T-bills.

Who said anything about T-Bills? I'm talking about plain old fashioned interest from having your money sitting in a bank account. Let's just say for sake or argument (and because the math is easy) that he was earning 5% interest.

5% of 56 Billion is $2.8 Billion. Since that's an annual percentage rage, that's $2.8 Billion a year. Now obviously there are taxes on that, and with that kind of cash you would want to buy private insurance, which would knock a couple of points off, but also keep in mind that he's probably getting closer to 7% - 8% because the amount is so high. I'm just talking about a checking account here ... if the money was actually invested instead of just sitting there, the return could be potentially greater, but make no mistake there is interest being earned on that money in some form or another and I guarantee you it's at LEAST 5%.

11:22 pm on Jul 24, 2004 (gmt 0)

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Basically the amount is basically keeping even because the cost of living or inflation is 3% a year. Plus you would be hard to find a bank, financial company that will give you 7% guaranteed on 56Billion, my personal bank only has 4 Billion in accounts. What is probably happening is that your going to get more than one financial company.
5:15 am on Jul 25, 2004 (gmt 0)

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>Stockholders still get to keep all their shares, they just get a check for $3/share.

Of course, the share price drops about $3.00 to account for the smaller treasure trove. So they take some MORE of their treasure trove, and buy shares of stock to bring the price back up to about where it was. (Normally, they buy on the open market.)

As I understand, it's a perfectly legal way of manipulating stock price, if you're careful about when you buy up the shares and how you tell people you're going to do it. (And there's a built-in limit to how far you can drive up the stock price with your own money, which precludes running the type of kiting scams that seem to characterize Tennessee Bank Holding Companies, Texas Energy Companies, or Massachusetts political candidates.)

Much as I despise Microsoft for a pillock of pinheaded helical-spined solicitor-spawned servants of Sauron, there's nothing unethical on the face of this. (In fact, they ought to have been doing it earlier. I think their self-fantasy of being a high-tech entrepreneurial company, rather than a monopolistic commodity, deceived them into thinking they needed to act as if they were investing, rather than raking in the moolah from old investments.)

1:21 am on Jul 26, 2004 (gmt 0)

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When have run your own stock price to the ground you invest in your self thus removing the amount of shares in the market.

The others then become more valuble (capital value/#of shares).

This is common practice as markets oscillate. you see gold companies do this all the time, process all the poor dirt, people think the mine has had its day, the company buys it's own shares and then starts processing the good stuff...everyone jumps on board, they sell out and around it goes again.

One thing is for sure they don't buy them back for nothing.
Gecko