For the First Time Ever, Microsoft Turns to the Bond Market

Microsoft (MSFT) said that it’s going to raise money from the bond market for the first time in its history. The company is going to sell $3.75 billion worth of debt in order to buyback shares and fund technology investments.
Frankly, I’ve become very skeptical of share buybacks. On paper, what Microsoft is doing makes a lot of sense. Implicitly, the company is saying the stock is too low and bonds are too high. That’s probably right.
However, I’d rather not have a company try to fatten its profits by making guesses in the financial markets—even if they’re good guesses. According to their latest statements, Microsoft has a cool $25 billion in cash and short-term investments. Why not draw from that? By just sitting there, it’s probably drawing a microscopic yield. Better, why not return a lot of that to shareholders. That might even get the stock up.
Ideally, a company should focus on its business and their financial strategy should merely serve what the business needs. Also, the government’s tax policy should be neutral in this regard so there’s no advantage in ignoring dividends.
Over the last eight years, Cisco Systems (CSCO) has spent over $46 billion on buying back shares of Cisco. The company has simply traded valuable cash for overpriced stock.

Posted by on May 11th, 2009 at 2:53 pm


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