Buyback Plan Falls Short

Microsoft’s plan to buy back up to 808 million of its shares, worth up to US$20 billion, through a reverse Dutch auction has netted less than 155 million shares, worth US$3.8 billion, as shareholders did not place enough shares into the auction. The results suggest that shareholders expect the stock price to rise or expect other benefits from holding the stock (such as a steady dividend) that outweigh the risk of falling share prices.

Not Enough Shares

During its Q4’06 earnings call on July 20, 2006, Microsoft announced its intention to buy back up to US$20 billion worth of its stock by Aug. 17. This was an acceleration of Microsoft’s already aggressive buyback activity—the company has repurchased more than US$30 billion worth of stock in the last two years in order to reduce dilution caused by employee stock grants and options, as well as to satisfy shareholders who believe Microsoft has more cash (US$34.2 billion as of June 30, 2006) than it needs to fund acquisitions and legal settlements, and that some of this cash should be returned to them.