Microsoft Ups Stock Buyback Plan After Tepid Response
Microsoft Corp. said Friday it was switching tactics in its $40 billion stock buyback program after only $3.8 billion worth of shares were tendered in a "Dutch auction" that expired Thursday, well below the $20 billion it had been prepared to spend.
The world's largest software company now says it will add up to $16.2 billion to its long-term, traditional repurchase program, almost doubling that plan's repurchase authorization to $36.2 billion through June 30, 2011.
Microsoft shares rose $1.09 , or 4.1 percent, to close at $25.79 Friday on the Nasdaq Stock Market.
In July, Microsoft said it planned to repurchase as much as $20 billion worth of shares by Aug. 17 in a Dutch Auction, which uses a bidding process to find the lowest price at which a company can sell its available shares.
However, the Redmond-based company said Friday it will only be buying about $3.8 billion worth of shares in that auction. That's about 155 million shares, or 1.5 percent of the company's stock, at $24.75 a share.
Charles J. Di Bona, an analyst with Sanford C Bernstein & Co., LLC, said that indicates few are willing to sell their shares below $24.75 -- a sign that investors think the stock is worth more.
Di Bona said he thinks the change in Microsoft's buyback plans could please Wall Street. "The signal they're sending is, 'Yeah we didn't get it for 24.75, but we're still going to go out and get it," Di Bona said.
Stock buybacks generally boost a company's share price because they lower the number of outstanding shares available on the market.
In July, Microsoft said its board had authorized it to spend as much as $20 billion on more traditional stock repurchases by June 2011; that is the program it increased on Friday. It also said then it had already completed a previously announced $30 billion stock repurchase program.
The July buyback announcements came on the heels of a 24 percent drop in fourth-quarter earnings to $2.83 billion, or 28 cents per share, despite a 16 percent increase in revenue to $11.8 billion. The company had warned of the lower earnings in April, saying the drop was due to the company's plans to boost research and development spending in areas where it is not dominant.