Microsoft Eases Investor Worry With £25bn Share Buyback

Microsoft has moved to quell growing shareholder unease by announcing a massive share buyback programme.

Redmond announced on Tuesday that it had authorised repurchase of up to $40bn (£25.1bn) worth of Microsoft shares, in an effort to boost the value of existing shares.

Share Repurchase

Microsoft explained that the new share repurchase program, which has no expiration date, replaces the previous $40 billion share repurchase program that was launched back in 2008, and is set to expire at the end of this month.

“These actions reflect a continued commitment to returning cash to our shareholders,” Amy Hood, chief financial officer of Microsoft, was quoted as saying during the announcement.

At the same time, Microsoft’s board of directors also declared a quarterly dividend of $0.28 (£0.18) per share, reflecting a 5 cent (£0.03) or 22 percent increase over the previous quarter’s dividend.

“We view this as a further indication that things are changing at Microsoft with respect to corporate governance that we believe could benefit shareholders over the next six to 12 months,” Nomura Securities analyst Rick Sherlund told the Guardian.

The markets, as would be expected, reacted well to the news and Microsoft’s shares closed up at $32.93 (£20.69) on the NASDAQ in New York.

Jittery Shareholders?

Share buyback schemes of this nature as seen as a way to placate existing shareholders, because it reduces the number of shares in a company and typically boosts the value of the available shares.

And lately, Microsoft shareholders have plenty to feel unsettled about.

The company has struggled to make its presence felt in the smartphone market, but there are signs that its reasonably popular Windows Phone mobile operating system is slowly gaining traction in the market. Redmond has also fared relatively poorly with its tablet offerings, as the software giant seeks to escape the clutches of the moribund PC market.

CEO Steve Ballmer has also recently announced his intention to retire within the next twelve months. The company has pledged to stick to his strategic overhaul and reorganisation plan, which will see the company consolidate into eight new divisions: engineering, marketing, business development and evangelism, advanced strategy and research, finance, HR, legal, and COO.

The idea is to bring the various units together to create a tighter organisation, which is able to compete more effectively in the mobile space and within Internet services, and shift away from its reliance on software and the declining PC industry.

Earlier this month Microsoft also made a radical move in the smartphone arena, when it agreed to purchase Nokia’s Devices & Services business for 3.79 billion euros (£3.2bn).

That deal gives Redmond both the hardware (Nokia’s Lumia handset portfolio) and the software (Windows Phone OS) to mount a better challenge to the smartphone goliaths, namely Samsung and Apple.

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