Microsoft Buys Back $40 Billion Worth of Stock To Use Cash Wisely

Today Microsoft is announcing another huge buyout of its stock - worth $40 billion dollars. The company has already completed the previous $40 billion buyout (it was originally for $30 billion with extra $10 billion added later) of shares and now we see the next round in an attempt to improve the corporation’s financial situation.

This buyout process is scheduled to run through September 2013. At yesterday’s price $40 billion could buy Microsoft 17% of shares but after today’s announcement the stock is growing rapidly so the final share that can be bought back from investors for $40 billion will probably be under 17% but still significant enough if you count all the dividends that the company will not have to pay to investors when the stock is owned by its own main shareholders.

The buyout sounds like a wise move for Microsoft given the current financial situation plus absence of appealing and expensive enough acquisition targets after Yahoo acquisition did not work out. So Microsoft has followed the obvious path and decided to use the huge cash balance it has to buy some of its own stock when it is cheap enough - but not too cheap to be too late in the game. After all, what’s the point of leaving the stock to investors and continuing to pay dividends when you have all the cash you don’t know what to do with?

Besides, it is quite obvious that shareholders of the software giant (same as shareholders of other corporations) are not sure about the investment climate in the current situation - which is absolutely understandable. So the buybacks have already been initiated by other huge corporations, including HP ($8 billion) and Nike ($5 billion). And if the shareholders don’t want to see value of their companies declining, they will most certainly continue the buyouts - so we will probably see quite a number of similar decisions announced this week.