Big Dividend, Buyback Announced

Microsoft has announced a major new cash disbursement plan under which it will pay a one-time dividend of US$3 per share, double the amount of its regular dividend, and buy back up to US$30 billion in stock over the next four years. In total, the plan will disburse up to US$75 billion.

Although investors have long been clamoring for Microsoft to return some of its cash (which currently stands at more than US$60 billion) to shareholders, the company consistently said it would keep this cash in reserve until most litigation against it was resolved. Although the cash on hand was far more than Microsoft needed to pay fines and reach settlements, the company was worried about a legal decision that would force huge changes in the company’s business, such as the first verdict in the U.S. Department of Justice’s antitrust case, which ordered Microsoft split into two companies.

Over the last 18 months, the company’s legal situation has stabilized. The company has paid more than US$3 billion to settle lawsuits filed by deep-pocketed competitors Time Warner, Intertrust (majority-owned by Sony and Philips), and Sun Microsystems. Judges have thrown out 15 class-action antitrust suits brought by consumers and approved settlements in another 14; most of these settlements have followed a very similar pattern, making the outcome of the remaining five suits reasonably predictable. The European Commission (EC) ended a four-year antitrust investigation in Apr. 2004, and although Microsoft is appealing the EC’s penalties, the scope of those penalties are known and, under the European appeals process, cannot be expanded (although future investigations resulting in new penalties are still possible). Finally, on the last day of Microsoft’s fiscal year (June 30, 2004), an appeals court unanimously approved the company’s Nov. 2002 settlement with the DoJ, making further challenges to that settlement extremely unlikely.