Microsoft has a nasty problem: figuring out what to do with $31.6 billion in cash. We can picture a sleep-deprived Bill Gates and a red-eyed Steve Ballmer toiling away night after night, trying to get Microsoft out of this predicament. It must be tough. So we decided to help them out by making a few suggestions on how Microsoft should spend its cash hoard.
We’re going to propose a variety of acquisitions. While the company hasn’t historically had an acquisitive culture, that seems to be changing. Last November, Microsoft hired Richard Emerson–a former managing director at the investment bank Lazard Frères–to head its mergers and acquisitions division. A month later, the company announced the purchase of the software developer Great Plains Software for $1.1 billion.
The only possible hitch could be its ongoing legal battle with the U.S. Department of Justice and 18 state governments regarding antitrust violations. Sources interviewed for this article, however, say that a settlement is the most likely outcome for the legal dispute, and that such a resolution would cost Microsoft between $1 billion and $2 billion. But that’s chump change. Here’s what it should do with the rest of the dough.
First, we think Microsoft should buy the security software developer Symantec. Microsoft software has often been plagued by security concerns, and acquiring Symantec would improve its product line with powerful antivirus and firewall capabilities. Since Symantec has a better mix of desktop and enterprise products than other companies in the sector, acquiring Symantec would buy more bang for Microsoft’s buck than, say, springing for Network Associates. The deal, however, wouldn’t be cheap. We put the cost of such a purchase at $4.2 billion, based on a 20 percent premium to Symantec’s market value as of August 14.
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There are many factors that must be considered when "scoping" out a company for a potential merger or acquisition. I being the CEO of a major competitive software manufacturing company look for many things. Things such as strategic planning, financial performance, technological advances and marketing opportunities are just some of the factors that must be looked at when considering another company ...
Microsoft should also buy the ISP EarthLink. The acquisition would strengthen Microsoft’s own MSN franchise by adding 4.8 million users, bringing the subscriber base to 11 million. It would also bring Microsoft a step closer to arch rival America Online, the leading ISP, which boasts almost 30 million users. “I’d like to see Microsoft do this deal,” says Henry Blodget, an analyst at Merrill Lynch. So would we. The cost? A mere $2.1 billion.
While they’re at it, it would be wise for Microsoft to acquire companies that can help expand its .Net platform for selling services and software on a subscription basis. One way to do so would be to spruce up its thriving bCentral Web site and Great Plains Business Solutions initiatives–which cater to small and mid-size businesses–with improved service options like robust customer relationship management capabilities. Epiphany, which makes software that helps firms analyze client data and increase customer service interactions, would be a good fit. The price tag? About $625 million.
Microsoft might also want to consider privately held Groove Networks, the software maker run by Ray Ozzie, who created Lotus Notes. Groove’s collaboration software is based on distributed-computing technology, and promises to integrate workers through secure peer-to-peer connections over the Internet. Albeit still a relative startup, Groove has won some heavyweight clients, like GlaxoSmithKline, and its technology could help Microsoft further push .Net into large corporations. Our private market sources tell us Groove could be had for about $300 million.
On the wireless front, Microsoft could make a bold statement by snatching up the software developer Openwave Systems. The purchase would give Microsoft a solid software platform to extend its .Net initiative into the wireless space, with opportunities like distributing Word and game titles to handheld devices. “Wireless is an area where Microsoft could be more aggressive,” says Paul Cook, senior portfolio manager with Munder Capital Management. Our estimate: $3.7 billion.
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Bill Gates went from an upper middle-class family to the one of the richest men in the world; who owns the largest software company, Microsoft. Neither Bill, nor Microsoft have reached their peak, but many events helped to lead them to where they are today. In the beginning, Bill Gates, a skinny, shy awkward boy born on October 28, 1955 to Mary and William Gates. As a teenager, Bill seemed an ...
What about fun and games? We think Microsoft should gobble up Activision for its ample portfolio of video games, which includes blockbusters Quake, Star Trek, and Tony Hawk’s Pro Skater. Such a purchase would guarantee a pipeline of software for Microsoft’s upcoming Xbox game console. Likely price tag: $1.3 billion.
We also see a couple of key sectors where Microsoft could make strategic investments: storage, telecom, and IT services. We’re allocating $1.5 billion for these investments. In storage, we’d like Microsoft to invest in Veritas Software. As storage networks multiply in size and number, storage management software will be king, and Veritas dominates the space. “Veritas can bring a lot of value to the table,” says Michael Stanek, an analyst at Lehman Brothers.
In telecom, we expect Microsoft to clinch some money-for-software deals with regional carriers like Verizon and SBC Communications. Those should be similar to Microsoft’s 1998 deal with Qwest Communications, in which the carrier committed to use Microsoft software, and, in exchange, Microsoft agreed to invest $200 million in Qwest.
Finally, Microsoft should continue to set up alliances with IT services firms, similar to its $1 billion joint venture with Accenture, which focuses on delivering Internet and other enterprise services based on the Windows platform. KPMG Consulting and Electronic Data Systems are potential partners in this sector.
We don’t expect Microsoft to run out and complete all of our suggested acquisitions pell-mell. But there’s no reason it can’t loosen up those purse strings soon. We’ve even taken into consideration Mr. Gates’s known financial conservatism. “I have developed a rule,” he writes in his 1995 book The Road Ahead (Viking Press).
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By running the Internet Microsoft could set up any programs that they wanted to. Also the software buyer would have to sue it because his system (computer) would only be compatible with one type of software programming. In addition and most important, not only is it not fair, it is illegal and it leaves no room for competition. Because of the loss of competition, Microsoft or any other company ...
“We always have enough cash on hand to be able to run the company for at least a year if no one pays us.” Based on Microsoft’s operating expenses in the 12 months ended in June, Mr. Gates’s lock box needs about $13 billion.
Our plan calls for Microsoft to spend only $13.7 billion, leaving the company with $17.9 billion to spare. That’s more than enough to spend on legal settlements as well as routine corporate expenditures like share buyback programs and research and development–especially when you consider the $1 billion in free cash flow the company generates every month. So what are you waiting for, Bill? Start shopping.
