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nonzerosum (45.55)

Microsoft could buy back all its shares in 5 years!



October 14, 2010 – Comments (1) | RELATED TICKERS: MSFT , INTC , GME

If you owned the last share of Microsoft, what do you think it would be worth?  Well, if you wait 5 years you could find out because Microsoft has the financial wherewithal to buy back all its shares in that short a timeframe.  At least at today’s stock price.   If anything, that tells you that Microsoft stock is seriously undervalued.  It also tells you that you should be writing to their Investor Relations department because Microsoft can do something about the situation.  Here is a sample letter to get you started:

Dear Microsoft Investor Relations (

Why is your CFO asleep on the job?  He could easily double the price of the stock with a few well aimed pen strokes.  He doesn’t need to fire any employees and he doesn’t need to take any unusual risks.  All he needs to do is follow some basic Finance 101 steps:  Take the $36B in cash you have lying around and buy back 1.4B shares.  Then borrow $100B in fixed 3% debt to retire another 4B shares.  That would double the EPS while keeping interest coverage above 7.5x, i.e. very safe.  My shares would double in value and most of the state pension funds in the USA would become solvent.  And don’t stop there.  Take your $15B in Free Cash Flow each year and use that to buy back the remaining 3.2B shares.  At the current $25 stock price that should take just a little more than 5 years.  The next 5 years can be spent repaying the debt.  I’ll keep the last share that’s left over so that I become the sole owner of Microsoft.  And when than happens I promise to give you a big bonus.


[Your name here]

P.S. My friend Nonzerosum at said I could share these charts with you.

P.P.S. And please save your R&D dollars and leave all that exciting smart-phone stuff to startup companies.  You’ll be better off using your vast R&D budget to purchase them outright rather than trying to rejuvenate your own culture.

Oh, and if those charts are not getting you to perk up then feel free to spice things up with a little inflation.  In 3 years time we should have a Quantitative Easing induced CPI spike.  Microsoft will be able to raise its prices while the bond holders will be left gnashing their teeth.

And one more point: There has been a big debate (here and here) whether the low interest rate environment (a.k.a. bond bubble) should have influence on stock valuations.  If corporations can borrow for less than 3%, like JNJ did recently, then you have a direct causal link between interest rates and stock valuations.  The worlds’ CFOs are not going to remain asleep forever and stocks like INTC, GME and MSFT will have to go up.

1 Comments – Post Your Own

#1) On October 30, 2010 at 3:40 PM, undefined808 (53.13) wrote:


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