by Matthew Quinn
Microsoft piqued the interest of the investment world on Monday afternoon by launching a $3.75 billion debt offering.
The issuance, the first corporate bond offering by the AAA-rated Microsoft, is particularly curious since the software goliath was already sitting on more than $25 billion in cash and short-term investments at the end of March.
What's more, the company isn't saying why the cash is needed. Microsoft management offered up a boilerplate response as to why it decided to issue the debt, telling Reuters it was taking advantage of "good market conditions and Microsoft's great credit rating." According to the company's filing with the SEC, the proceeds will be used for general corporate purposes, including working capital and buying back stock.
Tech industry watchers say Microsoft will indeed buy back more shares with the money raised in the bond offering. The market was so enthralled by that prospect, however, that Microsoft's stock price was down slightly at the close of trading on Monday.
Then again, the capital may be used to make good on a promise Microsoft's chief executive Steven Ballmer made back in October 2007. At the time, Ballmer told an audience at the Web 2.0 Summit that the Redmond, Wash. company would acquire 20 companies a year for each of the next five years, and spend as much as $1 billion a piece on them.
If that plan is still in place, Microsoft is going to be one acquisitive company between now and the end of June.
In its last fiscal year (ended June 30), Microsoft stuck to its five-year plan, buying 21 companies, including aQuantive for $5.9 billion and Fast Search and Transfer for $1.3 billion, according to the company's 10-K filing. The other 19 purchases cost $1.6 billion, for a grand total of $8.8 billion in acquisitions for the year.
The current fiscal year is an entirely different story, however. Microsoft didn't strike a single deal in the first three months of calendar year 2009. And through the nine months ended March 31, Microsoft had purchased just six companies, a puny haul that cost the company $879 million. Given Microsoft's massive size, all those deals put together might not necessitate the filing of an 8-K (for material events) with the SEC. Individually, the purchases barely warrant a press release.
To be fair, the last six months of 2008 and the first three of 2009 weren't exactly halcyon days for deal-making, due to the seize-up of the credit markets.
Still, given the cash-crunch bedeviling many undersized technology companies, it would seem that there is no shortage of smaller targets for Microsoft to go after. Business software powerhouse SAP doesn't quite qualify as a smaller target. But Microsoft shareholders probably wouldn't hold Ballmer to his 20-deals-a-year promise-if Microsoft were able to reel in the ERP giant.
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