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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: t2 who wrote (57041)	4/2/2001 8:49:05 PM
From: David Howe	Read Replies (3) \| Respond to of 74651

Rather than continue to just mouth off, I decided to make myself useful. Here's a clip from MSFT's last 10Q (published two months ago). << During the December quarter, the Company repurchased 22.8 million shares of common stock for $1.5 billion, compared to 42.6 million shares for $3.8 billion in the comparable quarter of the prior year. For the first six months of fiscal 2001, the Company repurchased 48.2 million shares of common stock for $3.2 billion, compared to 54.7 million shares of common stock for $4.9 billion. To enhance its stock repurchase program, Microsoft sells put warrants to independent third parties. These put warrants entitle the holders to sell shares of Microsoft common stock to the Company on certain dates at specified prices. On December 31, 2000, warrants to put 113 million shares were outstanding with strike prices ranging from $70 to $78 per share. The put warrants expire between March 2001 and March 2003. The outstanding put warrants permit a net-share settlement at the Company's option and do not result in a put warrant liability on the balance sheet. >> This put issue is not much of an issue, IMO. Read the above. Clearly MSFT has a history of buying back their stock. They are buying an average of around 100 million shares per year. They have puts on a total of 113 million shares that expire between March 2001 and March 2003. They typically buy 100 million shares per year, and the puts expire over the next two years. I don't see the big deal. Worse case is that we're in a long term bear market and MSFT has to repurchase the put shares at a price higher than the going market price. But then again, they get to purchase the rest of the shares at a price lower than they had probably anticipated. Heck, they might even buy more than the average number of shares if they believe in the long term value of their investment. This would reduce the share total and counter dilution due to additional stock option grants. I don't see the $10 billion issue that was mentioned here. Let's say that 1/3 of the puts expire this year and the strike price is $74. If MSFT has to pay the delta between say $55 and $74, that's only $700 million. That's a far cry from $10 billion. And, it's not a reason to dump their entire cash hord into supporting the stock price. Besides, I think they may have already recognized the drop in their put value in the recent quarterly report due to the recent accounting changes that require these hedges to be reported on the balance sheet accurately. The quarter ended with the stock at around $44, so the situation may have already been booked at a lower level than they could report today. And, there's always the minute chance <g> that the stock will actually go up between now and 2003. Possibly MSFT pays a bit more on the shares they buy in 2001 (due to the put hedge), but maybe the stock is in the $70s in 2002 and the put hedge is a push. Possibly by 2003 the stock is around $85 and the put actually makes them money. Just as much as it cost them in 2001 with the stock at $55. Who knows, stranger things have happened. IMO, Dave