What Else Might Microsoft Be Planning?

I understand why my colleague Michael Hickins thinks that Microsoft's plans for issuing $3.75 billion in bonds would be an acquisition. But I'm going to take another side of the argument -- that Microsoft's goals are more limited and more openly stated.

First, $3.75 billion, while a boat load of money, isn't that much when it comes to acquisitions of any size, although, as I've reported in the past, Microsoft's sweet spot for technology acquisitions is generally $50 million to $200 million. (Clearly an acquisition of something like Yahoo is far off Microsoft's usual activities.) As of 2007, the big "growth areas" for acquisitions were in Windows, servers, and tools. Yes, Microsoft keeps saying how important search is, but that's simply not where most of the practical emphasis has been, and you can't rule out them acquiring companies or technology to fill in spots on their overall roadmap.

Going through Michael's list, I think it's safe to say that Microsoft doesn't want to get into the device business because entry would damage existing relations with business partners. Microsoft already has significant share in mobile operating systems, and it doesn't want to antagonize its hardware vendor customers.

Buy SAP? A rumor floating around, but I agree that it's unlikely, especially as Microsoft has so many financial packages already and owning SAP would mean having to cozy up to Oracle, because so many instances of SAP software is on that database.

Entertainment and TV? Microsoft has already put a lot into its existing strategies, such as Windows Media Center or Xbox 360. What would an acquisition do here? Microsoft doesn't want a separate TiVO; it would rather push to have a Media Center by the TV.

No, I suspect that what Microsoft has in mind is exactly what it has said: working capital, capital expenditures, and stock repurchases. The latter includes the new $40 billion repurchase over the next five years, so $3.75 billion is hardly overkill. And what that does is give Microsoft a whole bunch of stock to offer as a payment: stock that will appreciate in value over time. So management can opt for making future acquisitions more heavily weighted toward equity shares, making the acquisition dollar go further.

Money image via stock.xchng user PocketAces, standard site license.