Along with better-than-forecast Q4 sales and raising forecast, Microsoft is also announcing it will again open its huge warchest to return excessive cash to investors -- the first $20B through a tender offer to be completed by August, and another $20B in ongoing share repurchase in the next five years. MSFT stock price is responding positvely (and my employee stock option account gets a much-needed lift too; that is after hemorrhaging more than $25,000 in the last five months.)
In particular, the tendor offer set a price range of $22.50 to $24.75, and pretty much ensures MSFT stock price will be range-bound in the next four weeks. It probably also offers a strong signal that Microsoft management (and board of directors) believes MSFT is priced below intrinsic value right now. A little known fact is July and August are the two months when most employee stock options will get vested (thanks to Microsoft's annual review cycle that usually finishes in August), so the clarity in price range also guarantees the value of employee stock incentives. Now I can also revise my just-released full-year income projection upwards too!
From
Microsoft Investor Relations:
The company also announced that its board of directors has authorized new share repurchase programs, comprised of a $20 billion tender offer scheduled to be completed on August 17, 2006, as well as authorization for up to an additional $20 billion ongoing share repurchase program with an expiration of June 30, 2011. Furthermore, the company also announced today that it completed its previously announced $30 billion stock repurchase program.
...
Under the terms of the tender offer, the company will repurchase up to $20 billion of its common stock at a price per share not greater than $24.75 and not less than $22.50. This represents the repurchase of up to 808,080,808 shares of common stock, or about 8.1% of the common shares outstanding. The tender offer is expected to commence on July 21, 2006 and to expire, unless extended, at 12:00 midnight, Eastern Time, on August 17, 2006. A modified “Dutch auction” will allow shareholders to indicate how many shares and at what price within the company’s specified range they wish to tender. Based on the number of shares tendered and the prices specified by the tendering shareholders, the company will determine the lowest price per share within the range that will enable it to purchase up to 808,080,808 company shares, or such lesser number of shares as are properly tendered. The company will not purchase shares below a price stipulated by a shareholder, and in some cases, may actually purchase shares at prices above a shareholder’s indication under the terms of the modified “Dutch auction.” Specific instructions and a complete explanation of the terms and conditions of the tender offer are contained in the Offer to Purchase and related materials that will be mailed to shareholders of record beginning on July 24, 2006.
Microsoft’s directors and executive officers have advised Microsoft that they do not intend to tender any of their shares in the tender offer.
Goldman Sachs and Deutsche Bank will serve as co-dealer managers for the tender offer. Georgeson Inc. will serve as information agent and Mellon Investor Services will serve as the depositary.
