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BLOG: For Microsoft, going private may not be such a bad idea

Andy Patrizio | April 4, 2013
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.

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.


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