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Microsoft Sweetens The Buyback Pot

By: David Utter

As the ongoing $30 billion stock repurchase prepares to close, Microsoft has decided to tack on another $16.2 billion in an effort to appease some of its big institutional investors.

Microsoft Sweetens The Buyback PotMicrosoft (MSFT) CEO Steve Ballmer met with high-powered analysts in New York and Boston this past June, where he defended the existing stock repurchase plan. The company's share price ticked upward on the news, up 1.09 to 25.79 at Friday's close.

Initially, Microsoft expects to repurchase 155 million shares at 24.75 each; they will spend approximately $3.8 billion per the preliminary results of its tender offer. Once the confirmation process has been completed they will disclose the final numbers.

Despite the new offer, several big money managers will be disappointed it isn't higher, even with Microsoft's board approving a total repurchase of $36.2 billion through June 30, 2011.

A few of them want the company to take advantage of its revenue stream by repurchasing shares well in excess of Microsoft's cash reserves. Pennant Capital Management's Alan Fournier suggested a $100 billion repurchase back in May.

And Joseph Rosenberg, chief investment strategist at New York-based Loews Corp, envisioned a $60 billion buyback at that time. Ballmer resisted such claims, citing the need to take a longer-term look at Microsoft given the ten years it took the first release of Windows to become a hit.

Ballmer also noted at the time that Microsoft had repurchased $87 billion of its stock over the past five years. While true, it also has not had much of an impact on Wall Street, where shares of the company have drifted in the $20s for nearly four years.

That in turn has led to unhappiness among Microsoft's staff, who have seen the top executives grow increasingly wealthy while their own holdings have provided a minimal return. That along with a corporate reshuffling in the wake of delays in releasing the Vista operating system have not helped cheer up a lot of faces in Redmond.


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