Microsoft Unveils $30 Billion Stock Buyback

Microsoft is finally doing something with that big pile of cash.

Company executives on Tuesday announced plans to buy back up to $30 billion worth of Microsoft stock over the next four years, issue a special one-time dividend of $3 per share and change Microsoft's regular dividend payments from 16 cents per share per year to 8 cents per share per quarter -- effectively doubling the dividend.

All told, the steps add up to $75 billion in value for shareholders over the next four years, Microsoft CEO Steve Ballmer said. Microsoft currently has $56 billion in cash and short-term investments.

Microsoft's huge cash hoard served as a hedge as the company faced potentially disruptive antitrust actions by the U.S. government, state governments and foreign governments, along with class action lawsuits and intellectual property disputes. The shareholder payout serves as a huge vote of self-confidence that future legal risks from U.S. antitrust fallout, the ongoing European Commission antitrust action and a newly announced Japanese inquiry are under control.

"We have resolved the large majority of our legal issues, which the company has always said was a prerequisite to addressing our cash management plans," Brad Smith, Microsoft's general counsel, said in a statement. "While we still have a number of legal issues and we take them seriously, we have reduced the legal uncertainties facing the company." Smith said Microsoft has a much clearer understanding of the potential risks involved in the European Commission case and other remaining cases.

Ballmer said the stock repurchase plan showed that Microsoft feels its potential for future growth is significant. "We are confident in our long-term ability to grow revenue, profits and shareholder value through our innovation and execution," Ballmer said. He asserted that all seven of Microsoft's businesses are growing. While that was true in Microsoft's third quarter, only three of the segments -- client, information worker and MSN -- were profitable. The server and tools segment appeared to lose money in that quarter only because of charges associated with the Sun Microsystems settlement deal. Microsoft is scheduled to report its fourth quarter earnings on Thursday.

The special one-time dividend would be payable in December, assuming shareholder approval of stock plan amendments that would adjust employee equity compensation awards. That dividend would cost Microsoft $32 billion. The 8 cents per share quarterly dividend will come to $3.5 billion per year, about $14 billion over the four year period.

Microsoft chairman and chief software architect Bill Gates vowed that the payout would not affect research and development.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.