What does Microsoft have left to gain by being public when the stock is at a standstill?
Should Microsoft go private? Don’t dismiss the question, it’s a valid one, even if it would be extraordinarily difficult.
The stocks of most of the old guard of the tech industry have been stagnant for years, even though the companies have done reasonably well or even very well in some cases. Yet they get no appreciation from Wall Street and are taken for granted. A recent Seeking Alpha blog asked if Microsoft was good for anything other than its dividend. At this point, they have to ask what they gain by being public.
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I’ll say it up front so you don’t have to: going private would not be easy for any of these companies. Their stocks are heavily diluted and they would need a ton of outside money to buy up enough stock to go private. It would be very, very difficult and I acknowledge that. That doesn’t mean it’s not worth considering.
You take a company public for a variety of reasons. My very first gig out of college was as a financial reporter. One of the conventional wisdoms I learned back then was you didn’t go public because you needed money to survive. Companies that did that were likely a bad investment to begin with. You went public for the big cash infusion and also as a lure for top talent.
Well, that day is over. We all know about the three Microsoft billionaires (Gates, Ballmer, Allen) and thousands of millionaires the company made, but those were early employees. Trust me, no one hired in the last decade became a millionaire on their options.
You go public to have shares to trade for acquisitions. Most of the acquisitions made by Microsoft are actually very small, strategic purchases. Its only big ones have been Skype and aQuantive, and boy was the latter one an utter failure.
You go public to get the attention of institutional investors and build brand equity. Does anyone NOT know what Microsoft is?
On the flipside, though, are the headaches. A public company spends millions of dollars per year on compliance rules, such as the inane Sarbanes-Oxley Act (SOX). SOX has been directly cited as the reason for the drop in initial public offering (IPO) activity in the 2000s while IPOs rose in foreign countries, including hundreds of American firms going public on the London Stock Exchange.
Also, back in 2005, the Committee on Capital Markets Regulation reported going-private transactions made up 25 percent of all public takeovers. In other words, public companies were taken over by private ones, and were subsequently taken off the market. That was double the pre-SOX level and the trend was largely blamed on SOX.
More important than compliance headaches is the complete monomania of Wall Street. It cares about a single thing: growth. If you don’t have a growth story, they don’t want to hear it. No company ever earned a Buy rating because it increased employee healthcare coverage or improved customer service.
Microsoft has a complicated, multi-year strategy to execute. It needs time and patience, something people clearly do not have with Windows RT. What better way to execute than to do it outside of the impatient eyes of Wall Street analysts who only care about next quarter’s projections. It’s not easy to implement a multi-year strategy when four times a year you have to hear ‘what are you going to do for me next quarter?’
Don’t tell me HP couldn’t benefit from this. Meg Whitman is doing her best and seems to be slowly righting the ship, but because people take the quarter-to-quarter view, and not the long view like a CEO with an ounce of vision has to take, she can’t get a break.
Intel’s stock is exactly where it was when Paul Otellini took over the firm in 2005. Back then, it was a $38 billion company, its products had lost major ground to AMD, it was under SEC and EU investigation and was being sued by AMD. Intel is now a $54 billion company, its revamped chips have laid waste to AMD so badly it’s no longer a competitive company, and all of the legal headaches are gone. And this is the thanks he gets for it.
Microsoft would similarly be well-served to operate in quiet for a while. The company has its own transition and transformation to address and it would be nice to do it without the quarterly dog-and-pony show. It won’t shield Ballmer from the criticism he has coming in response to Windows 8, but it would give him a chance to take a long view and actually execute on it without constant interruption.
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