4 Comments

Summary:

Nomura Securities analyst Rick Sherlund expects activism sparked by ValueAct will spur change for the better in Redmond.

Steve Ballmer at Build 2013
photo: Microsoft

Nomura Securities analyst Rick Sherlund sure thinks something’s up in Redmond. Thursday morning, he upgraded Microsoft from Hold to Buy based on his belief that ValueAct, which owns a less-than-1-percent position in Microsoft, is likely to spark a shake-up and gain a seat on the Microsoft board.

Sherlund, who has followed Redmond, Wash.-based Microsoft for years, first at Goldman Sachs and now at Nomura, has had his eye on ValueAct for some time, writing in a report last month that the then-recent Microsoft reorg didn’t address its core problems. ValueAct, a shareholder activist, took a $2 billion stake in Microsoft in April.

In a research note early Thursday, Sherlund wrote that Microsoft “fundamentals are still on a slippery slope as tablets erode PCs.” He also noted that Microsoft’s continuing strength in the enterprise business and the cash flows generated are a juicy lure for activists. After all, there’s still huge money in Redmond.

Microsoft CEO Steve Ballmer has been under fire for years by critics who say the company’s stock has underperformed, but he has managed to hold on. One reason: he still has the backing of Microsoft co-founder and chairman, and long-time friend, Bill Gates.

Microsoft’s analyst meeting is slated for September 19. If there is to be a proxy fight, notification must be made by August 30, Sherlund wrote. The board could decide to offer a board seat to keep the tensions under wraps.

As for ValueAct’s potential to raise a ruckus: Sherlund says it’s an opportunity to force change. He even quoted Archimedes: “Give me a place to stand and I can move the world.”

  1. Count me as skeptical. I view step 1 as buying stock. Step 2 would be raising this type of hype. Step three will be selling the $2B of stock for something in excess of that after the hype raises the price of the stock.

    I just don’t see buying 1% of a company’s stock as being a rational way to change any company, unless maybe they have other “large” stockholders in their camp already.

    Share
    1. Maybe I was wrong!

      http://gigaom.com/2013/08/23/microsoft-ceo-steve-ballmer-to-step-down-within-a-year/

      (Although obviously the two stories could be unrelated.)

      Share
      1. i don’t think unrelated at all. Holy cow.

        Share
  2. I believe Archimedes requested a really large lever in his quote.

    Share

Comments have been disabled for this post