Contemporary Issue on Microsoft & Netflix
Contemporary Issue on Microsoft & Netflix
Companies often buy back their own shares. There are several reasons to take such step that is to increase earnings per share, return on equity, to avoid takeover attempts, or to reduce the number of shareholders and so on. Some publicly held corporations purchase all their outstanding shares with the procedure of leverage buyout (LBO) and choose to go private. Recently, this LBO procedure is adopted by dell with the help of Microsoft contribution of 2 billion dollars. In the article “Microsoft Takes A Side in PC Wars,” Ovide and Das, discuss the deal between dell and Microsoft that provided Microsoft, with “the choice: either taking 2 billion more in high yield debt or bringing in Microsoft as a ‘passive debt investor’ who would emotionally and financially committed to Dell’s future.” Microsoft agreed to provide a loan to dell so they can free their company from the pressure of the shareholders and run the company with their terms and strategy. Aristotle once said, “Wealth does not lie in ownership but in the use of things”. Clearly, Microsoft has interpreted Aristotle for their long-term benefit. Their decision to turn down the ownership option of dell over the contribution of 2 billion dollar loan to dell is an intelligent move from the Microsoft perspective. Microsoft, a cash cow, who is standing on the pile of $68.3 billion in cash and its short-term securities itself, generates about $2 billion in cash every month; thus, this loan is not high risk for Microsoft. Currently, Microsoft has no control over dell operations but in the long run it can gain a lot of benefits from this small amount of contribution. In the future, if Dell carries out its operations successfully and substantially increases its value, Microsoft will have an incentive to convert its debt to equity and get its chunk of Dell’s profits. On the other hand, if Dell’s profits deteriorate, then, keeping its debt as is, Microsoft will be receiving its
Companies often buy back their own shares. There are several reasons to take such step that is to increase earnings per share, return on equity, to avoid takeover attempts, or to reduce the number of shareholders and so on. Some publicly held corporations purchase all their outstanding shares with the procedure of leverage buyout (LBO) and choose to go private. Recently, this LBO procedure is adopted by dell with the help of Microsoft contribution of 2 billion dollars. In the article “Microsoft Takes A Side in PC Wars,” Ovide and Das, discuss the deal between dell and Microsoft that provided Microsoft, with “the choice: either taking 2 billion more in high yield debt or bringing in Microsoft as a ‘passive debt investor’ who would emotionally and financially committed to Dell’s future.” Microsoft agreed to provide a loan to dell so they can free their company from the pressure of the shareholders and run the company with their terms and strategy. Aristotle once said, “Wealth does not lie in ownership but in the use of things”. Clearly, Microsoft has interpreted Aristotle for their long-term benefit. Their decision to turn down the ownership option of dell over the contribution of 2 billion dollar loan to dell is an intelligent move from the Microsoft perspective. Microsoft, a cash cow, who is standing on the pile of $68.3 billion in cash and its short-term securities itself, generates about $2 billion in cash every month; thus, this loan is not high risk for Microsoft. Currently, Microsoft has no control over dell operations but in the long run it can gain a lot of benefits from this small amount of contribution. In the future, if Dell carries out its operations successfully and substantially increases its value, Microsoft will have an incentive to convert its debt to equity and get its chunk of Dell’s profits. On the other hand, if Dell’s profits deteriorate, then, keeping its debt as is, Microsoft will be receiving its
References: · OVIDE, SHIRA. DAS, ANUPREETA . "Microsoft Takes a Side in PC Wars" Wall Street Journal. 02 2013. Microsoft .03 2013 . · Gownder, J.P. . "Microsoft 's European Fine Comes in an Era of Browser Diversity" Forbes. 03 2013. Microsoft. 03 2013 · OVIDE, SHIRA. "Microsoft Trims Bonus for Ballmer on EU, Online Woes " Wall street Journal. 10 2012. Microsoft. 03 2013 . · Gara, Tom . "Re-imagining the SEC: More Like a Twitter Feed?" Wall street Journal. 03 2013. Netflix. 03 2013 . · Lipschutz, Neal. "SEC’s Ruling on Social Media: What Exactly Is Material Information?" The Wall Street Journal. 04 2013. Netflix. 04 2013 . · Kieso, Weygandt, Warfield. Intermediate Accounting. 14th ed. Vol. Denver: John Wiley & Sons, Inc, 2012. 42-1581.