* Raises quarterly dividend to 28 cents per share
* Investors set to quiz management on Thursday
* Shares rise 0.39 percent
By Chandni Doulatramani and Edwin Chan
Sept 17 Microsoft Corp raised its
quarterly dividend by 22 percent and renewed its $40 billion
share buyback program, extending an olive branch to investors
who are expected to grill its outgoing CEO on Thursday about a
costly foray into mobile devices.
The surprisingly big hike takes Microsoft's dividend yield
to around 3.4 percent, ahead of major tech corporations such as
International Business Machines Corp and Apple Inc
But it may not satisfy activist investment firm ValueAct
Capital and its supporters, mainly other big investment funds,
analysts said. Some investors held out hope for a bigger slice
of the company's $70 billion cash hoard, now that ValueAct has
an option to take a seat on the software giant's board and exert
greater influence over the company.
ValueAct has not publicized its goals. But people familiar
with the fund's thinking say it questions Chief Executive Steve
Ballmer's leadership and the wisdom of buying Nokia Corp's
handset unit to delve deeper into the low-margin
hardware business, and that it wants higher dividends and share
Microsoft's shares finished 0.39 percent higher at $32.93 on
"I expected ValueAct to push for a big lump-sum payment like
they have in the past," said Fort Pitt Capital analyst Kim
Forrest, who has not spoken with the fund.
"And this is Microsoft saying no."
A hotly anticipated investor meeting on Thursday will give
shareholders their first chance to quiz management on who may
replace Ballmer, who announced plans to retire within a year
after ValueAct pressed for his ouster.
It is unclear how hard ValueAct pushed Microsoft to share
more of its $70 billion cash hoard. ValueAct CEO Jeffrey Ubben
declined to comment about Microsoft during an industry event in
New York on Tuesday.
For years, investors have called on Microsoft to return cash
to shareholders rather than invest in peripheral projects, and
limit its focus to serving enterprise customers with its vastly
profitable Windows, Office and server products.
This month, it announced plans to buy Nokia's phone business
and license its patents for 5.44 billion euros ($7.2 billion), a
hefty investment that some criticized as a foray into a field
already dominated by Apple and Google Inc hardware and
Microsoft has lost almost $3 billion on its Bing search
engine and other Internet projects in the last two years alone,
not counting a $6 billion write-off for its failed purchase of
online advertising agency aQuantive.
Investors want a clearer picture of where Microsoft's
investments in devices will take the company in coming years,
especially as its cash cows, Windows and Office software, come
under attack from Apple and Google in the mobile market, and the
likes of Evernote and Box begin to develop productivity
"They really need to address what Microsoft will look like
in a few years, and what the end goal is," Forrest said.
ONE COMPANY TO RULE THEM ALL
Ballmer announced his move just weeks after unveiling a 'One
Microsoft' vision focused on hardware and cloud-based services.
But poor sales of the Surface tablet, on top of its years-long
failure to make money out of online search or smartphones, have
cast doubt on the plan.
One of the biggest questions hanging over Microsoft is who
will take the helm once Ballmer exits, and whether the successor
will hew to his vision. Several sources have said top investors
in the company are seeking a turnaround expert from within or
without, and have proposed CEOs like Ford Motor Co's Alan
Mulally or Computer Sciences Corp's Mike Lawrie.
The Nokia acquisition also brings former, well-regarded
Microsoft executive Stephen Elop, who had headed the
Finland-based company, back into the fold.
Tuesday's dividend and buyback declaration will help appease
some investors for the time being, analysts said.
Microsoft said it will raise its regular dividend, payable
on Dec. 12 to shareholders of record on Nov. 21, to 28 cents per
share and authorized a new share buyback program.
The 5-cent increase, worth about $400 million a quarter, was
about 3 cents more than analysts had expected. The new share
repurchase program, with no expiration date, would replace
another set to expire on Sept. 30.
Microsoft ranks fourth on Wall Street in terms of actual
cash payouts, behind Apple, Exxon Mobil and AT&T Inc
. In terms of dividend yield, it ranks fourth among U.S.
information technology companies, lagging only Intel Corp
, Seagate Technology and Microchip Technology
Inc, according to S&P Dow Jones Indices.
"We view this as a further indication that things are
changing at Microsoft with respect to corporate governance that
we believe could benefit shareholders over the next six to 12
months," Nomura Securities analyst Rick Sherlund said in a note.
But Barclays analyst Raimo Lenschow had expected an
accelerated or expanded share buyback plan. The slightly
bigger-than-expected dividend increase may signal a willingness
to bow to investors' demands.
"A major open question is the timeframe over which the
company plans to utilize the new $40 billion authorization, as
that will dictate whether the level of the annual buyback is
changing," Lenschow wrote on Tuesday.
"While the size of the new buyback program appears on the
lower end of investor expectations, which we had pegged at close
to $50-60 billion, the lingering question around the timeframe
of the program makes the comparison to expectations flawed."