Microsoft unwraps plan to repay shareholders

With many of its potentially costly legal challenges now behind it or nearing resolution, Microsoft Corp. announced plans Tuesday to return about US$75 billion to its shareholders over the next four years, including a special, one-time dividend of US$3 per share.

The company’s board of directors has also approved a regular quarterly dividend of US$0.08 per share and a plan to buy back up to US$30 billion of Microsoft stock between now and 2008, company officials said.

The announcement ends growing speculation as to how and when Microsoft would begin distributing the vast fortune it has amassed, which amounted to about US$56 billion in cash and short-term investments at the end of its last quarter. The software maker had been expected to reveal the plan at a meeting for financial analysts next week in Redmond, Wash.

Microsoft said the move was motivated in part by confidence in its ability to increase revenue and profit in the coming years through innovation and new products. But the timing was clearly also driven by its success in settling numerous lawsuits against the company, reducing the likelihood of substantial litigation costs in the future.

“We think that we’ve put many of our legal issues in the rear-view mirror, so to speak, which affords us this opportunity to move forward with the cash management plan that we announced today,” Steve Ballmer, Microsoft’s chief executive officer, said in a conference call.

Bill Gates, Microsoft’s chairman and chief software architect, called the move “a pretty exciting milestone.” He said in a separate statement that he would donate his proceeds from the one-time dividend, worth about US$3 billion, to the Bill & Melinda Gates Foundation.

Microsoft has faced pressure from shareholders to repay some of the profits it has made, especially since its share price has remained relatively constant over the past few years.

Microsoft cited several legal developments that led it to believe the worst of its legal woes are behind it. In April it agreed to pay Sun Microsystems Inc. almost US$2 billion in a deal that ended Sun’s antitrust lawsuit against the company. And last year it paid US$750 million to settle antitrust claims by America Online Inc.’s Netscape division.

More recently, a U.S. appeals court approved Microsoft’s settlement with the U.S. government in its long-running antitrust case. And the European Commission’s case against Microsoft has reached the appeals stage, which means the penalties in that case are unlikely to escalate beyond what already has been recommended, said Brad Smith, Microsoft’s general counsel.

“It will not get worse because there will be no opportunities for additional issues to be raised; that’s just the nature of the appellate process (in Europe),” Smith said. “That gave us the certainty that the board was looking for in terms of understanding what was at stake.”

The payback plan won’t reduce Microsoft’s spending on research and development, Gates said. He enthused about several upcoming products, including new versions of the company’s SQL Server database and Visual Studio development tools, both of which are due next year after delays. Its online properties, including the MSN search engine, will be improved “in a pretty dramatic way,” he said.

In a question and answer session, Ballmer sounded bullish about Microsoft’s growth prospects. “As I look out, I’m confident we have some of the greatest dollar-growth prospects of any company in the world, full stop,” he said.

Asked what it plans to do with its remaining cash hoard, John Connors, Microsoft’s chief financial officer, said the company will pursue some acquisitions and “opportunistic investments,” but will also remain “relatively conservative in keeping resources available for unforeseen circumstances.”

The quarterly dividend of US$0.08 cents per share effectively doubles the current annual dividend of US$0.16 per share, Microsoft said.

The one-time dividend of US$3 per share, to be paid Dec. 2, depends on shareholders approving an amendment to Microsoft’s employee stock plan. When a company issues such a large, one-time dividend, its shares typically decline in value by about the same amount. The proposed amendment is designed to ensure that Microsoft’s workers are not “inadvertently disadvantaged by this process,” Ballmer said.

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