Summary:

With Nokia, Microsoft takes on 32,000 more people so if its latest devices push doesn’t pay off, watch out for shareholders with torches and pitchforks.

Whether Microsoft should have given ValueAct the heads up on its $7.2 billion buyout of Nokia is a matter for discussion, but it’s likely that the lack of communication will spark more angst among long-suffering shareholders, according to Nomura Securities Analyst Rick Sherlund.

On Tuesday, Microsoft General Council Brad Smith said ValueAct, which will gain a seat on the Microsoft board this fall, and has negotiated a cooperative pact with Microsoft, was not informed of the plan to buy Nokia’s smartphone group. As Sherlund and others have described it, ValueAct and Microsoft signed a standstill agreement in which ValueAct said it will not to raise its stake in Microsoft above an agreed-upon level and not to wage a proxy battle for control of the board. In return it gets a board seat and input.

In a conference call with Nomura clients later Tuesday, Sherlund expressed puzzlement. “That’s a little surprising to me — I know you can’t disclose material confidential information to shareholders but it raises a question: If you know something and you don’t disclose it when you enter a contract, is there a good faith issue? I don’t know what the implications are of that but I would suspect it will create more drama in the Microsoft boardroom and more pressure on directors.”

Sherlund also was concerned about the cost of this acquisition long term. “It’s disappointing that they’re doubling down on hardware and taking on 32,000 employees. That’s a huge increase in the cost structure if you don’t deliver.”

Hardware, as Sherlund pointed out, has been a problem for Microsoft. The company took a $900 million writedown on its tablet business in July and it makes no money on its popular Xbox game consoles.

The Nokia deal will also boost pressure on Microsoft’s independent board members, who Sherlund said have been loathe to talk with shareholders in the past. Sherlund said he sees a slight change recently with John Thompson being more open to such conversations.

Post Nokia deal, Sherlund expects there will be “more pressure on independent directors to look independent and look like they’re doing their jobs.”

According to corporate bylaws, the Microsoft board can range from 3 to 11 members; there are 9 currently, with ValueAct making 10. Outgoing CEO Steve Ballmer is expected to remain on the board.

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