From the little I know about this kind of stuff this makes a lot of sense... could this let them innovate/take risks more, instead of being tied to stock holder's demands of sticking tightly to financial forecasts?
From what little I know, I'd expect the opposite. Their war chest is what allowed them to run exploratory divisions at a loss, like the XBox and Zune groups.
They are not running those out of the bank balance. They're running them out of the profits of the profitable businesses, which are still very profitable.
1) The $40B buyback is over the next 5 years.
2) At least for the next couple years, Windows and Office are still the closest thing in the world to a money printing press.
They only increased the quarterly divident by $0.02 per share. The 2004 special one-time dividend was $3.00 per share. Without the buyback, Micosoft could repeat the $3.00 per share dividend with money to spare.
Granted, this is an over-simplification of what is going on. Microsoft authorized a $40 billion buyback but they probably won't buy back all $40 billion. This has the effect of inflating the price of shares beyond their true value.
The main people who win are here are the ones that would have used the dividend to buy more Microsoft shares (since a buyback effectively is a way of the company forcing you to buy more shares with your dividend, but with lower taxation and brokerage fees), and the ones that are were going to sell their Microsoft shares anyway.
That depends on whether or not they think their stock is underpriced. Microsoft could give their shareholders cash, or they could purchase an asset (MSFT) with an earnings yield of over 7%.
Would it be worth a group of hedge funds buying say 50% of MS and forcing it to pay all it's spare cash as dividends? What would the return on investment be on this?
(Let's assume it's worthless for MS to re-invest any money in R&D etc. Assume they'll profitably sell Office and windows for another 10 years as they slowly die.)
