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Microsoft Raises $3.8B in Bond Sale

kdawson posted more than 5 years ago | from the name-is-bond-cheap-bond dept.

Microsoft 437

pfleming writes "Microsoft quietly, or not so quietly, raised some cheap cash in bond sales yesterday. For a company that already has a huge cash war chest and doesn't carry debt, what is the incentive to sell nearly $4 billion in bonds? From the article: 'Microsoft is sitting on $25 billion in cash, so the company doesn't need the bond proceeds "unless they have something big in mind," says Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business.'"

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Yahoo (5, Insightful)

nicolas.kassis (875270) | more than 5 years ago | (#27926371)

Obvious first idea.

Re:Yahoo (0, Offtopic)

Lord Ender (156273) | more than 5 years ago | (#27926819)

No, this is the new chair fund. They're even building a chair-throwing range with moving targets.

Re:Yahoo (3, Informative)

tcopeland (32225) | more than 5 years ago | (#27926853)

> Yahoo

Steve Ballmer just did a session at the Stanford Entrepreneurial Thought Leaders Seminar [stanford.edu] where he was asked about the Yahoo acquisition. He said something to the effect of "I still think it was a good idea". Who knows, maybe you're right...

Re:Yahoo (1)

Kensai7 (1005287) | more than 5 years ago | (#27926887)

I believe they could do it even without the bond. Any bigger alternatives?!

The name is... (5, Funny)

Geoffrey.landis (926948) | more than 5 years ago | (#27926381)

The name is bonds... Microsoft Bonds.

Re:The name is... (5, Funny)

microbee (682094) | more than 5 years ago | (#27926669)

Somehow "micro" "soft" don't sit very well with "Bond".

I am more concerned about... (2, Funny)

Lead Butthead (321013) | more than 5 years ago | (#27926893)

Microsoft Bondage.

Re:I am more concerned about... (0)

Anonymous Coward | more than 5 years ago | (#27926989)

Microsoft Bondage.

BDMSM?

Question (2, Interesting)

egr (932620) | more than 5 years ago | (#27926395)

Where can I buy this bond?

Re:Question (2, Interesting)

Lord Ender (156273) | more than 5 years ago | (#27926741)

JP Morgan Chase. They probably won't talk to you unless you have many thousands to invest, though.

Re:Question (5, Informative)

cynical kane (730682) | more than 5 years ago | (#27926879)

No, any bond broker should carry them. E*Trade has some for offer right now. And you don't need "many thousands". You do need one thousand, though, as bonds are typically sold with a face value of $1000.

Re:Question (0)

Anonymous Coward | more than 5 years ago | (#27926933)

Right here [amazon.com] .

SAP (4, Insightful)

twistedemotions (231376) | more than 5 years ago | (#27926397)

German software company SAP appears to be a possible target.

Re:SAP (4, Funny)

revlayle (964221) | more than 5 years ago | (#27926493)

The only positive of that, is MAYBE MS would kill off Business Objects once and for all (yes, I know, a pipe dream)

Re:SAP (1)

Churla (936633) | more than 5 years ago | (#27926529)

Of all the possible targets I would have to say this one has a lot of solid reason behind it.

They want to be the "software for everyone" and that means running businesses. One reason the PC took off over the Mac was that many people used PC's at work, so used them at home. Make sure people see lots of Microsoft at work, they will be more likely to run it at home.

Might be a good idea (-1, Troll)

Anonymous Coward | more than 5 years ago | (#27926675)

Since Microsoft Dynamics is a nasty piece of hammered dogshit.

Re:SAP (4, Funny)

Deag (250823) | more than 5 years ago | (#27926683)

No no they are building the solar train, the numbers add up.

Re:SAP (2, Insightful)

rackserverdeals (1503561) | more than 5 years ago | (#27926735)

Even IBM won't buy SAP [cnn.com] and I think it's unlikely that MS would. Or at least I think it would be a bad idea.

SAP doesn't look like a good buy. SAP stockholders would want a premium over it's current share price and at 48 billion bucks it doesn't look attractive for a company that only has only $16 billion in annual revenue.

It's not a big discount like other companies, such as Sun, that really took a beating recently in the market.

The Oracle/Sun deal might hurt SAP but with their revenue and profit it's still good to be SAP, but with their market cap, it's not good to buy SAP in my opinion.

Dell? (1)

WindBourne (631190) | more than 5 years ago | (#27926841)

Just thinking about it, SAP might be a target. BUT, in light of Oracle's buyout of Sun, I could see them going after several targets. Dell might be a better one to go after.

My theory. (5, Funny)

Capt.DrumkenBum (1173011) | more than 5 years ago | (#27926399)

8 Billion to buy Sun out from under Oracle.
The rest for the antitrust lawsuits.

Buyout? (5, Funny)

Xoron101 (860506) | more than 5 years ago | (#27926401)

Maybe they want to buy GM?

Re:Buyout? (0)

Anonymous Coward | more than 5 years ago | (#27926431)

The market cap of GM is less than $1 billion right now. All the common stock could be purchased for this price.

Re:Buyout? (1)

nicolas.kassis (875270) | more than 5 years ago | (#27926501)

That's not how it works. You can just go out and try to buy every outstanding stock in one shot anyway + you still have to convince the current stock holders to sell.

Re:Buyout? (2, Interesting)

NatasRevol (731260) | more than 5 years ago | (#27926709)

Give them 4x their current holdings, I bet most would sell.

4x$1B == $4B

See the connection?

Re:Buyout? (1)

Amouth (879122) | more than 5 years ago | (#27926731)

i don't think that would be an issue right now

Re:Buyout? (0)

Anonymous Coward | more than 5 years ago | (#27926837)

Right now, you could probably offer 50-75% of the market cap for GM and have a realistic shot of getting it. Odds are GM will be bankrupt RSN and the current stock will be worth $0. Of course, you might be getting a really bad deal, since then you would also own all the debt. If you were to offer 50% of the market cap for the equity and 40 cents on the dollar for debt you would have a really good shot at getting it as well.

Re:Buyout? (1)

brian1078 (230523) | more than 5 years ago | (#27926465)

That's at least an order of magnitude more than they would need to take GM off the government's hands. :D

Re:Buyout? (1)

Publikwerks (885730) | more than 5 years ago | (#27926473)

They should wait a month or so then. They could pickup GM for a copy of Vista and a unlimited refils from the Redmond soda fountain

Re:Buyout? (3, Funny)

ausekilis (1513635) | more than 5 years ago | (#27926565)

Just what we need, Microsoft Hummer.

First they were big, resource-intensive, and used by people oblivious to what's around them. Now they'll blue-screen at the drop of a dime or pop up a dialog for you to confirm you really meant to use the brake pedal.

Re:Buyout? (1)

nsayer (86181) | more than 5 years ago | (#27926921)

Well, it would make all of those car analogies you find here on /. all that much more apropos.

Bond. (-1, Redundant)

Anonymous Coward | more than 5 years ago | (#27926403)

Bond. James Bond.

It's obvious (1, Flamebait)

Publikwerks (885730) | more than 5 years ago | (#27926409)

They are going to clone Jesus

Re:It's obvious (1)

martin_henry (1032656) | more than 5 years ago | (#27926615)

Probably better marketing than that Mojave Experiment.

Re:It's obvious (0)

Anonymous Coward | more than 5 years ago | (#27926657)

They are going to clone Jesus

But would a clone of Steve Jobs be willing to work at Microsoft?

Re:It's obvious (2, Funny)

sentientbeing (688713) | more than 5 years ago | (#27926773)

Thats a ridiculous idea.

He wouldnt sell well in international markets.

MOD PARENT UP (0)

Anonymous Coward | more than 5 years ago | (#27926785)

Mod parent up - unless you hate Jesus.

That's just fiscally stupid. (1)

tjstork (137384) | more than 5 years ago | (#27926415)

Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money given an extremely rough competitive landscape seems to be the worst decision made in the history of the company.

Re:That's just fiscally stupid. (4, Insightful)

Geoffrey.landis (926948) | more than 5 years ago | (#27926513)

Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money...

Because debt is really cheap right now.

Re:That's just fiscally stupid. (4, Insightful)

FooAtWFU (699187) | more than 5 years ago | (#27926867)

You know what else is cheap right now? Microsoft stock. Compared to last year, anyway (it's down a third)... and possibly compared to next year? They could invest in themselves: buy back company stock now while debt is N%, possibly leaving the (remaining) shareholders with a more-than-N-% return several years down the line when their stock rises due to other reasons.

Re:That's just fiscally stupid. (1)

logjon (1411219) | more than 5 years ago | (#27926599)

You should probably just stick to your guns, finance not being one of them. There is a huge difference between the practices of AIG and the like and leveraging a few billion dollars out of what is now nearly 30. No parallel whatsoever. And like Geoffrey said, debt is cheap right now. And that, coupled with Microsoft's obviously high bond rating means you clearly have no idea what you're talking about.

Re:That's just fiscally stupid. (2, Insightful)

FooAtWFU (699187) | more than 5 years ago | (#27926681)

Actually, Microsoft can probably get a pretty good deal on debt, considering how safe they are and how risky everyone else looks. This is a way to exploit an advantage they have right now, and they can wait for a chance to use it in the future. They must think that the interest on a bond must be cheaper than waiting (or waiting-and-spending-their-own-cash. since cash is a handy buffer and a hedge against risk in These Turbulent Economic Times (tm) and possibly worth it.)

Re:That's just fiscally stupid. (5, Insightful)

jayhawk88 (160512) | more than 5 years ago | (#27926815)

I'm guessing that Microsoft has about 4 dozen guys that know so much about finance, they would literally make you slit your wrists should you ever be matched up against them in a test of financial knowledge. Maybe, just maybe, they know what they're doing more than some random dude Slashdotting from work.

Re:That's just fiscally stupid. (1)

sgbett (739519) | more than 5 years ago | (#27926889)

AAPL is cheap right now. That would be some hedge play :D

Re:That's just fiscally stupid. (1)

SlashDotDotDot (1356809) | more than 5 years ago | (#27926885)

From TFA:

The deal also allows Microsoft to "dip a toe in the bond market," says Andy Miedler, senior technology analyst for Edward Jones. The sale makes rating agencies more familiar with Microsoft, which would help if the company ever decides to issue large amount of debt quickly, Miedler notes.

I'd be surprised if they could pull off any big (0)

Anonymous Coward | more than 5 years ago | (#27926427)

I'd be surprised if the justice dept would allow them to purchase anything substantial with their current market share and prior anti-competetive behaviour.

whatever (0)

Anonymous Coward | more than 5 years ago | (#27926441)

whatever
i
do
what
i
want

Perhaps they want to show debt for some reason? (3, Insightful)

erroneus (253617) | more than 5 years ago | (#27926447)

While it may be true that they just want to buy something big (like politicians, judges, executive-branch officers) what if they merely wanted to show that they had X amount in debt for some other reason like taxes or some such thing?

Re:Perhaps they want to show debt for some reason? (1)

pfleming (683342) | more than 5 years ago | (#27926655)

Debt doesn't play into taxes - paying interest on the debt does to some extent.

Re:Perhaps they want to show debt for some reason? (1)

earlymon (1116185) | more than 5 years ago | (#27926695)

Also - how would it not help their stocks if they are now perceived as up to something big?

Oh please, those can be bought for peanuts (0, Troll)

SmallFurryCreature (593017) | more than 5 years ago | (#27926737)

The really shocking things isn't so much that the powers that be are corrupt, but how cheaply they sell themselves for. Even Obama. Raised millions from ordinary citizens and still sells out to big business for little more then some spare change.

Re:Oh please, those can be bought for peanuts (2, Insightful)

The End Of Days (1243248) | more than 5 years ago | (#27926931)

Just so you know, big businesses are owned by "ordinary citizens."

Re:Oh please, those can be bought for peanuts (1)

cataclyst (849310) | more than 5 years ago | (#27926981)

Wow, I don't know which is more pathetic: your seemingly unfounded claims, or your use of "more then" instead of "more than". No wait, it all makes sense now..

Re:Perhaps they want to show debt for some reason? (1)

chamont (25273) | more than 5 years ago | (#27926761)

They're buying the USA. 30 billion is overpriced for us right now.

Wow... (0, Offtopic)

XPeter (1429763) | more than 5 years ago | (#27926449)

25B? That's a lot of chairs, Steve.

Incentive (5, Interesting)

DoofusOfDeath (636671) | more than 5 years ago | (#27926451)

It may be that they're hedging their bets against a possible dry spell in their business. Better to get the cash now, while their bond rating is good and they can get a low interest rate, than trying to issue bonds when they're not looking so hot.

Re:Incentive (0)

Anonymous Coward | more than 5 years ago | (#27926947)

It may be that they're hedging their bets against a possible dry spell in their business.

Possible dry spell, you say? Microsoft are shittin' bricks because their most popular product, their desktop operating system, has been found by the people to be a steaming bloated pile of stinky fatty shits.

The people have decided that, in the present economy, they do not wish for a half-forced hardware upgrade just so they can run the steaming bloated pile of stinky fatty shits known as Vista and its equally vile successor, 7.

Microsoft's server share is a joke, and so are their forays into the hardware market: The X-Box and the Zune! The X-box makes only enough money to keep Microsoft's name in the game. The Zune is literally a malformed brown turd, devised by the clever marketing geniuses in Microsoft's Bangalore detachment.

Microsoft are stockpiling payola to shoehorn their crap technologies into our faces through paid politicians, ad execs, and product placement in popular media. Microsoft will be dead in 20 years. Will you drink the kool-aid before then? I hope not -- unless *pffffftHAHAHAHAHAHAH* they release a reliable quality product that the people will chose!

Re:Incentive (2, Insightful)

cabjf (710106) | more than 5 years ago | (#27926979)

So they wait until after Vista and in the middle of the recession? Is this a bet that Windows 7 somehow might not deliver like they want or need it to? I think they're looking to do something with the money, not sit on it for a rainy day.

Simple (4, Interesting)

overshoot (39700) | more than 5 years ago | (#27926461)

Right now, it's money for nothing and the stock market is way down. Buy stocks with cheap money, and a year from now the ROI is great.

Of course, they may also be starting their business model conversion, a la Control Data Corporation. The software monopoly may not last forever, after all, and this is a cheap way to hedge their bets.

Re:Simple (2, Interesting)

Darth_brooks (180756) | more than 5 years ago | (#27926863)

Pretty much. I think in terms of the markets, everyone is slowly coming to the conclusion that we're not going to be moving to the "gold bar, shotgun shell, and hard liquor" currency standard any time soon. Now everyone's looking to turn a few bucks.

Besides, with so much cash on hand Microsoft bonds are just ungodly attractive. Especially after the past few years of "these 15,000 crappy mortgages bundled together are a totally sound investment, we swear!" or "Of course GM and Chrysler are going to make good on these bonds. The fact that Vinnie the loanshark thinks the rates are exorbitant means nothing. These are solid American institutions!"

Seriously, even if the cash on hand at MS has been dropping for a while they're still an attractive buy. In this market, a company with 25 billion cash on hand that wants to raise another five or six billion is like throwing a drunk Brad Pitt to Oprah's studio audience.

Re:Simple (0)

Anonymous Coward | more than 5 years ago | (#27926993)

Buy stocks with cheap money... including your own! That'll push it up and "build shareholder value".

Refunds (3, Funny)

Anonymous Coward | more than 5 years ago | (#27926463)

The Bonds will fund refunds for Vista, and Windows 7 from consumers who want to downgrade to XP, or upgrade to Ubuntu.

Re:Refunds (0, Flamebait)

WizardFusion (989563) | more than 5 years ago | (#27926907)

The Bonds will fund refunds for Vista, and Windows 7 from consumers who want to upgrade to XP, or upgrade to Ubuntu.

There, fixed that for you

Hyperinflation (1, Insightful)

Anonymous Coward | more than 5 years ago | (#27926471)

They probably see hyperinflation coming, and they want to get into debt and buy something fast.

Moon base (5, Funny)

Reality Master 201 (578873) | more than 5 years ago | (#27926479)

They're moving off planet to avoid problems with anti-trust regulation. Also, chairs thrown from the moon will have much greater impact on earth based targets.

Re:Moon base (1)

dkleinsc (563838) | more than 5 years ago | (#27926593)

They're going to have to go up against Google [google.com] if they go for a lunar base.

Re:Re-Entry (1)

Drafell (1263712) | more than 5 years ago | (#27926727)

Providing, of course, that the chairs survive re-entry. They would probably need to be encased in some kind of ceramic shell.

Re:Re-Entry (1)

TheSpoom (715771) | more than 5 years ago | (#27926827)

That's why part of the money is going to Microsoft DuraChairs!

So strong, even Google won't know what hit them.

Their cash pile is dropping (4, Insightful)

mangu (126918) | more than 5 years ago | (#27926487)

$25 billion seems like a lot, but it used to be more than that [seattlepi.com] .

The important thing to note here is the trend, not the current value.

Re:Their cash pile is dropping (1)

cygnusx (193092) | more than 5 years ago | (#27926733)

From the link above, given the sharp drop in cash reserves in Q4 2004, I wonder if that was when they decided to issue dividends, or buy back shares.

Remember that cash piles of 50bn+ are just silly and will never be reached again, now that MSFT issues dividends.

Re:Their cash pile is dropping (4, Informative)

pfleming (683342) | more than 5 years ago | (#27926749)

And that article states they purposefully reduced cash by buying back outstanding stock and paying dividends - they didn't lose it all...

The cash pile dropped because of dividends (0)

Anonymous Coward | more than 5 years ago | (#27926751)

They used to sit on mountains of cash until stockholders got pissed about it, so they paid out a lot of the cash as dividends to their investors. That's where it went, AFAIK. It's not like their profits took a hit.

Slashdot? (0, Flamebait)

ChatHuant (801522) | more than 5 years ago | (#27926495)

Maybe they want to buy Slashdot - but they overestimate the price, I'm sure the owners would let it go for a tenner or two...

Obviously EU! (1)

toetagger (642315) | more than 5 years ago | (#27926499)

Just like MS used to first infringe on other companie's patents, and then buy the whole company if they were sued, they are now planning to buy the EU, just so they don't have to pay the more expensive fine imposed on them there.

A decent OS? (0)

simplu (522692) | more than 5 years ago | (#27926507)

Maybe they want to buy a decent OS? And then drop Windows?

What "Cash"? (4, Insightful)

AK Marc (707885) | more than 5 years ago | (#27926519)

No company sits on cash. They don't put it under a mattress. They invest it. If they are making 5% more in investing than the bonds cost, then why not borrow to invest? I've seen other huge companies borrow to invest, and there are whole classes of scam-sounding TV commercials about get rich quick with nothing down that are exactly that.

Other than that, there is no real reason to raise capital, unless they had an accountant that made them bid for cash against the investment opportunity and some $4 billion project decided to just borrow externally rather than get charged against a higher rate for taking internal money. But that's internal mumbo jumbo that just goes back to the initial point above, where it's being borrowed because the cost of bonds is lower than using the warchest. There exists nothing that could tap the entire cash reserve in a reasonably short enough time to justify bonds at this point unless they were buying Bolivia or something.

Re:What "Cash"? (1)

LaminatorX (410794) | more than 5 years ago | (#27926679)

MS Bolivia - "Where do you want to go to escape extradition?"

Re:What "Cash"? (1)

XanC (644172) | more than 5 years ago | (#27926765)

Sure companies sit on cash. It may not be bills in a mattress; it's in a savings account or something. These are called "cash accounts" because they are not investments.

Re:What "Cash"? (0)

Anonymous Coward | more than 5 years ago | (#27926833)

This is not true. Companies like Microsoft must hold cash in near-riskless investments like AAAs and short term Treasuries, which currently pay under 3%, otherwise they have to be regulated like a business in the finance industry (e.g a hedge fund). This was a hot topic in our company because folks wanted to make sure our huge wad of cash was not lost in the stock market (and it was not). There is no way Microsoft can get 5% on their investments with these restrictions.

Re:What "Cash"? (1)

sherriw (794536) | more than 5 years ago | (#27926923)

Not all companies go into debt. See the list on this article: http://www.usatoday.com/money/perfi/columnist/krantz/2007-03-20-debt-free_N.htm [usatoday.com]

They have a AAA rating (4, Insightful)

Actually, I do RTFA (1058596) | more than 5 years ago | (#27926523)

Microsoft has a AAA rating. At this point in time, people are desperate for a safe place to park their money. Interest rates are low. Simply by holding onto it in cash now, they're betting they can make back the interest plus some later. And if deflation occurs, woo-hoo!

It'd be foolish not to borrow money given how cheap it is now, and how it's not likely to last at that level.

Its not about acquisition (5, Informative)

Anonymous Coward | more than 5 years ago | (#27926579)

Microsoft is becoming a mature company and they are operating like one. The will use this money to repurchase their own stock while it is at a discount. They will then keep the dividends on the stock for the company. This will continue until the stock price gets high again. They will then resell the stock for a profit and resources when they need it.

Yes, I am a trader.

Re:Its not about acquisition (1)

pfleming (683342) | more than 5 years ago | (#27926835)

They might be buying back stock to retire it or plop it into "treasury stock" but this is not typically stock that you resell on the open market.

Finally. (0)

Anonymous Coward | more than 5 years ago | (#27926589)

They are going to give me my money back for buying Vista! BRILLIANT!!!

It is not uncommon to do this.. (4, Interesting)

Chyeld (713439) | more than 5 years ago | (#27926641)

At least, the companies I've all worked for have all done business in this manner:

Have a fairly large cash reserve which is your 'emergency' fund. When you need to aquire a company or other such big ticket item, borrow. Even if you have the cash, investors consider how you are leveraging your credit when looking at whether to buy your stock and being under leveraged is just as bad as being over leveraged (cause you are letting money that could work for you just sit idle, stunting your earnings).

Low rates + share buyback (1, Informative)

Anonymous Coward | more than 5 years ago | (#27926661)

There is a feeling that the credit markets should be recovering, and Microsoft, with a AAA rating, is capitalizing on that by offering a low level of risk, which will entice bond buyers looking to get back in, but who are still wary. Combine that with a low stock price, and it's easy to see that they're going to buy back some of their outstanding equity.

It's not mentioned in the summary, but this is the first debt offering in Microsoft's history.

Perhaps (2, Interesting)

Dyinobal (1427207) | more than 5 years ago | (#27926687)

Perhaps they plan to buy part of the wireless spectrum out from under the noses of google.

For acquisitions? Doubtful (2, Interesting)

PPH (736903) | more than 5 years ago | (#27926691)

Because of the recent changes [redorbit.com] in antitrust enforcement policy, I don't think they are planning to do too many acquisitions.

It's called the cost of capital (3, Interesting)

alen (225700) | more than 5 years ago | (#27926697)

and raising money via debt is the cheapest way to run a company. every project has a cost of capital usually calculated by the direct monetary cost, estimated returns, etc.

debt with it's low interest rates is the cheapest

retained earnings or cash in the bank is more expensive because investors expect growing earnings

selling stock is the most expensive due to expected returns

a lot of companies like GE have borrowed at short term rates and simply rerolled the debt every time it matured paying low rates. nice until 2008 and GE's rates shot up to almost 10%.

Re:It's called the cost of capital (1)

sherriw (794536) | more than 5 years ago | (#27926813)

I disagree. I have my own small business and I'm starting it slow and small from my home. I don't have a start-up loan. I put my profits in the bank and operated my business from my cash reserve.

Seeing as my cash is earning interest for me, rather than debt on which you have to pay interest, I say that's the cheapest way to run a company. It just doesn't have the quick, instant growth you might get with borrowing a sum of money. But there's something to be said for slow and steady.

Re:It's called the cost of capital (1)

alen (225700) | more than 5 years ago | (#27926965)

you can grow a lot faster by taking on debt

for example more retail stores don't have the cash on hand to buy all their inventory, so they borrow in the short term bond market. if they didn't do this they would have a hard time opening new stores

it all depends on the size of the business. the rules in running a home business are not the same as a fortune 500 company

Incorrect assessment. (4, Informative)

downix (84795) | more than 5 years ago | (#27926747)

The article claims MSFT is sitting on $25 million in cash. This is frankly false. What MSFT is sitting on is $25 million in "Cash and Short Term Savings." In short, a combination of Cash and Stock prices, which are not being adjusted as the companies values go up and down, and do not need to be adjusted to actual street value at the present time. What they do have is $8 billion in cash on hand, down from $12 billion a year prior (as of latest SEC filing in March). If I'd lost 1/3rd of my cash in less than a year, I'd be doing a bond right now as well.

Buying debt (0)

Anonymous Coward | more than 5 years ago | (#27926753)

So, who wants to buy Microsoft's debt?

Money is cheap. (2, Interesting)

feepness (543479) | more than 5 years ago | (#27926757)

If I could borrow $4B at the rates MSFT is getting I'd run out and get it too. Then they invest the money later (remember they are already investing $25B) and end up with a positive return.

This is just accountants shuffling paper. Nothing to see here.

Steve Ballmer's Chair Budget (2, Funny)

ErikTheRed (162431) | more than 5 years ago | (#27926767)

I'm investing my life savings in Seattle-based office furniture retailers.

Advertising compaign? Or...? (2, Interesting)

yurik (160101) | more than 5 years ago | (#27926791)

I can see a few alternatives:

* Advertising
    "Windows better than everything..." advertising campaign might be one. Massive consumer bombardment with "Windows 7" ads similar to what they did with Windows 95.

* Hardware
    Microsoft might follow Apple and Oracle, and start making their own hardware. Massively parallel chips geared towards both the vector and regular computations would be one idea.

Alternatively, their own servers (totally not their market segment, plus they will aggravate their relationship with Dell and others, so this is less likely.

* M & A...
    Buying Yahoo? Or better yet - Novel? That would be an interesting development. Novel has very little influence compared to their former glory, yet some of their technology (Moonlight?) might be valuable to MS. So instead of discrediting Mono project, MS might simply jump on it and start offering various open source solutions ... I know I'm daydreaming...

Maybe they're just eating their own dog food (1)

Cajun Hell (725246) | more than 5 years ago | (#27926825)

And the bond sale was a software error.

I have 3 words for you. (2, Funny)

Anonymous Coward | more than 5 years ago | (#27926843)

Duke. Nukem. Forever.

This is just corporate finance (4, Insightful)

Stuntmonkey (557875) | more than 5 years ago | (#27926901)

The why of this is fairly straightforward from a financial standpoint. Companies can raise money from two sources: Equity and debt. The cost of debt is obvious (the interest rate). The cost of equity is less obvious but very real: Investors demand a particular total rate of return on the money they invest in a stock, either in the form of dividend payments or retained earnings (appreciation in the value of the stock). If the total rate of return from your stock is less than what the market demands (based on its perception of how risky you are), then your stock price will fall until the desired rate of return is met. Typical long-term total return from the stock market is 9-10%, and for a tech company most investors will want more because of the perceived risk.

Anyway, the point is that when interest rates are low, it's a lot cheaper to get money from debt markets than from equity markets. So the smart CFO will borrow money and use it to buy back (and retire) stock. If you're a shareholder you like this in net, because although the company now has debt to pay back (a liability which decreases the value of your shares), the positive impact on value from having fewer shares outstanding outweighs it. The only downside to this strategy is that interest on debt must be paid back on a defined schedule -- bond holders aren't willing to defer their payoff like equity investors are (and consequently bond investors make lower returns on average). GM is an object lesson in getting squeezed this way. Many tech companies avoid long-term debt as a result; they don't like the ongoing obligation. If anything this move by Microsoft signals to the market that they've become a stable business that is confident in its long-term ability to generate cash.

MS publicly stated this debt is to buy back stock (0)

Anonymous Coward | more than 5 years ago | (#27926957)

apparently Georgetown Professors haven't been reading any financial news sections for the past year.

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