Microsoft has decided to dispose of a $56 billion mountain of cash on hand with a special one-time dividend payment of $32 billion to shareholders. All told, the company plans shareholder dividends and stock buybacks totaling up to $75 billion over four years.
The one-time payout will give the software giant's largest shareholder, Bill Gates, a cool $3.3 billion. He's planning to give the cash to his family foundation. Other big winners include Microsoft Chief Executive Steve Ballmer ($1.23 billion) and a group of institutional investors who have invested heavily in Microsoft.
Microsoft, which has a near monopoly on the software that runs the world's desktop computers, generated $10.4 billion in cash during its 2003 fiscal year alone. But its stock price has been little changed for almost three years, increasing pressure on the company to do something with reserves that now total at least $56 billion.
With the bulk of Microsoft's legal troubles behind it, the company said it finally felt free to spend part of its stockpile.
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 paid its shareholders in April, including $1.4 billion to MGM's largest shareholder, billionaire Kirk Kerkorian.
The monumental payout will give shareholders a quick gain and the buyback may help lift Microsoft's shares. The company's stock, one of the nation's most widely held issues, has hovered between $23 and $30 since April 2002, despite steady profits and the growing pile of cash.
The dividend and buyback plans were announced after the close of markets. Shares of Microsoft surged more than 5 percent in after-hours trading after closing the regular session up 37 cents at $28.32.
Microsoft withdrew an employee stock option plan in September because of stagnant share prices and instead began giving employees smaller amounts of stock outright. It also recently imposed cost-cutting measures amid efforts to keep profits up as its once-stellar revenue growth threatens to slow.
Microsoft chief executive Ballmer 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 experts might have recommended 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 that "shareholders are getting some immediate gratification from this."
The one-time dividend is subject to shareholder approval of a plan intended to 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.
The buyback and dividends will not affect the company's spending on new technology, executives said.
"We are going to continue to aggressively fund research and development and all the breakthroughs across all our businesses," Ballmer said in a conference call with journalists and analysts.
Curt Anderson, Microsoft's senior director of investor relations, said the company had not yet worked out the details of how the massive stock buyback would work, or the exact timing.
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 an antitrust settlement negotiated about two years ago with the Bush administration. It still faces a lengthy antitrust battle with the European Union.