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August 28, 2007

Whither Microsoft?

Posted by David Hunter at 4:30 PM ET.

It’s no secret that while Microsoft has some incredibly lucrative businesses, the bounty has not been passed on to the shareholders due to an overlarge management’s insistence on dabbling in a variety of expensive projects that they aren’t managing to a payoff. The cure for that is obvious, but the mechanics of effecting such a change are less so. Today at ZDNet UK, Rupert Goodwins assesses the possibilities for an leveraged buyout (LBO) or a shareholder revolt:

Hit the link for some of the better lines ( e.g. “its upper management, plentiful enough by themselves to populate an entire Jurassic landscape, rarely show signs of evolved thinking”), but here’s the nut:

In shape and prospects, Microsoft is an unreformed infrastructure company with a lock on the market. There are huge savings possible by culling management and R&D, neither of whom seem to have the slightest positive effect on sales or products. That’s the perfect target for investors looking for guaranteed revenue with minimal investment and long-term prospects.

It’s occasionally refreshing for the geeks in the lab to see how the financial world views their efforts. Management too.

But while the idea of the company being seized by predators and viciously right-sized is appealing, the moment for that to happen may have passed. After the money market temblors of the past month, debt is dangerous and liquidity is everything. Few people would want to sink the required 40-odd billion dollars of ready cash into such a deal, let alone take on the hundreds of billions of debt.

So what’s an investor to do?

This is the weather for a coup, whether by a posse of external shareholders with inside support or a rebel group of managers with help from the investors.

And Goodwins’ belief is that it will happen sooner rather than later. It is certainly possible, but who is going to step forward to lead the charge?

Filed under Financial, General Business, Investor Relations, Microsoft

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