SEATTLE – Bowing to pressure after years of enormous profits but a stagnating stock price, Microsoft Corp. (MSFT) is dipping into its substantial cash reserves with plans to return as much as $75 billion to shareholders through a combination of dividends and stock buybacks.
The software giant has amassed billions in recent years, most notably from sales of its two cash cows: the dominant Windows operating system and popular Office software. It generated $10.4 billion in cash during its 2003 fiscal year alone.
But its stock price has been little changed for almost three years. That has increased pressure on the company to do something with a cash pile that now totals at least $56 billion — and is expected to continue to grow steadily.
Now that many of its legal troubles appear to have been resolved, the company said it finally felt free to spend part of its stockpile.
The Redmond-based company plans to pay a one-time dividend of $3 per share — at a cost of $32 billion — and will double its annual dividend to 32 cents per share. Microsoft, which has about 10.7 billion shares outstanding, began paying a dividend in March 2003. The company also said it plans to buy back as much as $30 billion of the company's stock over the next four years.
The payout suggests Microsoft has, at least for now, put off plans to use the money to make a major acquisition to punch up growth. Microsoft disclosed last month that it had initiated merger talks with German software maker SAP, but called off the potentially costly deal after deciding it would be too complex.
The Microsoft plan dwarfs $1.9 billion in dividends that Metro-Goldwyn-Mayer Inc. (MGM) paid its shareholders in April, including $1.4 billion to MGM's largest shareholder, billionaire Kirk Kerkorian (search).
Chairman Bill Gates (search) said his share of the one-time payout, which amounts to about $3 billion, will be pledged to the Bill & Melinda Gates Foundation (search), the billionaire's philanthropic organization.
The monumental payout will give shareholders a quick gain and the buyback may help lift Microsoft's languishing share price. Microsoft stock, one of the nation's most widely held issues, has hovered between $23 and $30 since April 2002, despite steady profits.
The dividend and buyback plans were announced after the close of markets Tuesday. Shares of Microsoft rose about 3 percent, or 77 cents, to $29.09 in early trading Wednesday on the Nasdaq Stock Market.
Microsoft withdrew an employee stock option plan in September because of stagnant share prices and instead began giving employees smaller amounts of stock outright.
The company also recently imposed cost-cutting measures amid efforts to keep profits up as its once-stellar revenue growth threatens to slow.
Microsoft chief executive Steve Ballmer (search) defended the company's future prospects Tuesday, saying he believes the company has "some of the greatest dollar growth prospects in front of us of any company in the world. ... Now we have to execute well."
Goldman Sachs analyst Rick Sherlund said analysts might have hoped that more money be spent on stock buybacks instead of the one-time payout, since that could help the stock price more in the long term.
But he said, "Shareholders are getting some immediate gratification from this."
The one-time dividend is subject to shareholder approval of an amendment that would prevent employees who hold stock options or stock awards from being put at a disadvantage.
The concern is that the stock price will drop on the day of the payout, so the company wants permission to come up with a plan to make up for that loss.
If that plan is approved, the special dividend would be paid out Dec. 2 to shareholders of record on Nov. 17.
Curt Anderson, Microsoft's senior director of investor relations, said the company had not yet worked out the details of the massive stock buyback.
Microsoft had previously been hesitant to spend the billions it has been amassing because of fears the money would be needed for legal disputes. But the company said Tuesday that the large majority of its legal problems appear to be behind it.
Microsoft has settled many of its private antitrust claims, and it cleared its most significant U.S. legal hurdle when a federal appeals court unanimously approved the antitrust settlement the company negotiated about two years ago with the Bush administration. It still faces a lengthy court battle with the European Union (search), where it is appealing an antitrust ruling against it.
Microsoft is to report financial results for its 2004 fiscal year, which ended June 30, on Thursday.