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Strategies & Market Trends : Professional Equity Analysis - the Pursuit of True Value

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To: cape radical who wrote (32)	1/28/1997 7:09:00 AM
From: Reginald Middleton	of 102

<you make a very good point about MSFT and its cash pile. this money is not being used productively and would benefit the shareholders more if it were in their hands, i.e., who knows best how to diversify and invest stockpiled cash?> Actually, I think MSFT would do a better job of investing the money thatn the vast majority ofthier investors. But I find it diffcult to beleive a company of thier caliber cannot find enough investments that will satisfy the EVA rule in order to make use of that 9 billion. For instance, 500 million (a very small amount) could have been used to buy Corel when their stock price was in the doldrums. Corel had just purchased wordperfect for about 200 milllion dollars, from Novel who had paid way over a billion dollars. Corel is the pre-eminent graphics suite company for the PC platform, and Corel has one of the largest Java development teams in the industry. They came out with the first allegedely functional java application (Corel Java Office). Corel was also making slight inroads into MSFT's cash cow suite business. All of this would have been attained by MSFT for practically pennies, for Corel was selling at a releatively low price. A leveraged buyout of Corel would have formed significant synergies (MSFT's graphis programs can;t come close to Corel's), eliminated a good amount of competition from Java development and office suites, and provided one hell of a bang for the buck on some of that idle money that MSFT is sitting on (more than the 5-6% return they would get on the cash income). Liquidity would not have been muchofa factor either, for this would have represented a very small amount of the 9 billion.

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