No company is safe from activist investors—not even Microsoft

April 22, 2013
April 22, 2013

Activist investors have gone after bigger targets in recent years, showing there are no more sacred cows left in the corporate world. Companies that were once seen as untouchable, like Apple or Procter & Gamble, have come under shareholder pressure because of their lagging stock price. The latest example is Microsoft. CNBC reported today that activist investor ValueAct Capital has taken a $2 billion stake in the software giant.

Investors have been complaining about Microsoft’s stagnant stock price for years, and there have been calls to oust CEO Steve Ballmer, who took over from founder Bill Gates in 2000. But going after companies with such large market capitalizations was seen as difficult because of the amount of shares an investor would have to buy to be taken seriously. Even ValueAct’s $2 billion purchase represents less than a 1% stake in Microsoft.

The company presents other hurdles besides its size. Ballmer, who has shrugged off criticisms that Microsoft was behind on tablets and smartphones, owns 4% of the company himself. And although Bill Gates has been selling down his Microsoft shares, he is still chairman of the board, and has a big microphone.

Nonetheless, activist investors have shown in recent years that they don’t need a big holding in a company in order to exert influence. Activist investor Ralph Whitworth at first had only about a 1% stake in Hewlett-Packard, but was seen as credible enough that HP gave him a seat on the board. Whitworth was recently appointed the interim chairman of the board, after longtime chairman Ray Lane stepped down last month.

Similarly, the news of ValueAct’s purchase (video) sent Microsoft shares up by about 4%. ValueAct, which has pushed for the sale of companies and other major changes in stocks it has bought into in the past, told CNBC its investment was based on the fundamental value of Microsoft’s stock, and that the fund will talk to the company’s board if it is “unhappy.” In other words, ValueAct will likely advocate a higher dividend or share buyback, either of which could boost the stock price. If it is feeling really “unhappy” and also really confident, it could push for a management shakeup.

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