Why the smart money is on Fortress Microsoft

23 Sep 2008

When the going gets tough, stand firm Microsoft seems to say, as the Redmond-based software giant yesterday announced a US$40bn stock repurchase programme amid shaky times for Wall Street.

This, according to Microsoft, is simply following on from the previous US$40bn stock repurchase that it has just completed, but actions of this kind in an uncertain market have a certain purpose.

Globally, IT spending is down and investors may be looking elsewhere, so a buyback move may well promote trust, if not in the sector as a whole, then in Microsoft itself.

“These announcements illustrate our confidence in the long-term growth of the company and our commitment to returning capital to our shareholders,” said Chris Liddell, chief financial officer of Microsoft.

Now, Microsoft may be a giant in the technology sector’s blue chips, but keep in mind that stock valued at US$35 back in January is now close to US$25.30 as of 23 September, so it is rewarding investor loyalty as well as preventing itself from becoming a victim of the market.

This seems like a sensible option and is a bit like deciding to spread manure before the excrement can hit the fan, some might say.

Added to this, Microsoft’s board of directors also authorised debt financings of up to US$6bn, and the firm has issued its first commercial paper of US$2bn.

While the commercial paper received the highest possible rating from both Moody and Standard & Poor, the firm itself was given the stamp of approval as carrying a credit risk of almost zero.

By Marie Boran

Pictured:Entrance to Building 8 on the Microsoft Redmond Campus