ValueAct takes $2 billion stake in Microsoft; is it targeting Steve Ballmer?

Last week, Microsoft reported it generated more than $20 billion in revenue and made over $6 billion in net income for the first quarter of 2013. Despite the good news, a new report claims a well-known hedge fund is planning to announce it has bought a significant amount of stock in the company as part of a plan to potentially force Steve Ballmer out of his chief executive position at the tech giant.

CNBC, a business network on cable TV, reports ValueAct Capital is planning to buy a $2 billion stake in Microsoft, which would be about one percent of the company's total worth. The story was first revealed on CNBC's Twitter page:

ValueAct Capital was formed in 2000 and is run by Jeffrey Ubben, who will apparently reveal more about his intentions later today at an investment conference. StreetInsider.com reports that speculation has centered on Ballmer. It's possible that Ubben may try to use his stake in Microsoft to lead other investors in an effort to get rid of the chief executive.

There's also speculation that Ubben might try to convince shareholders to break up Microsoft. Microsoft's stock price has gone up more than four percent since the news of ValueAct Capital's stock purchase broke.

Source: CNBC on Twitter

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I think Microsoft is an excellent investment.

It's a company with shares that are cheap, that isn't performing great relative to its previous heights that is full of talented people and owns many important brands and products. It's hard not to see a huge potential for growth if they play things right, with relatively little risk (even if Microsoft somehow vanished completely it's trading at about $20 a share now).

Meanwhile, as one comparison, Apple stock costs a fortune and whilst it might go up, there is an awful lot of room for it to go down . . .

Ballmer has achieved next to nothing of his own. All the massive money makers were well on their way when Bill was in charge.

He's overseen Windows 7 as the most solid release. Now his wonderful Windows 8 is flopping hard (If you're a Windows 8 fanboy, just **** off, you have no argument, it's selling like **** based on Marketshare).

I have no doubt he lives and breathes Microsoft. But he's just not in touch with what his customers want or need any more. He's turned Microsoft into an arrogant company.

What the f*ck? Microsoft just delivered a solid quarter, all the stupid tech press have been writing Microsoft's obituaries for years now. Stop this nonsense, it's all been blown out of proportion.

These hedge fund guys will lose their shirts if they try anything like this. Put simply, they don't have enough money. Playing these kinds of games requires deep pockets. And no-one has deeper pockets than the founders of Microsoft. Ballmer has a very, very, very rich safety net.

So this story is all bull.

Since Ballmer was a major player in the Windows-8 debacle, his removal may be an excellent first step in assuring Microsoft's strong position. Thumbing one's nose at a huge portion of your customer base is never a wise move.

What's the alternative? Go on maintaining the 20+ year old Desktop systems, and not plan for the future where touch based computers replace the desktop machine?

Most of the problems are PR and idiots mouthing off online IMO.

Plan for the future huh? I love when the loyalists say that. There are different ways to prepare for the future. We all know tablets and mobile devices are the future and will become more and more popular. The touch experience in Windows 8 is a monstrous failure. They need to go back to the drawing boards. One, it is not ergonomic. Not everything needs to be updated when it doesn't serve a purpose. Why are young folks today hell bent on this needs updating, that needs updating? Your comment about the 20 year old desktop is moot. The automobile industry has had steering wheels for decades, lets put a touch screen steering wheel in because touch is the future. No, you add things like a steering pump, ECT, first. Microsoft tried to take a giant step and failed.

You say it's failed, after less than a year - that first of all is a little presumptious.

Then you say its not ergonomic... not sure where you pulled that from, but I will chalk that up to your opinion.

At worst you can say they took too big a leap with Windows 8, but it does not invalidate what they are aiming towards, just that some people are not ready for it yet and need more easing and education.

People also forget Windows 8 !=all of Microsoft. There's Server(s), dev tools, virtualization, cloud services, Office, and devices. I know the client side does make them a decent amount of money, and it's one that most folks interact with, but they fail to grasp that a good number of the things they do online and off also interact with a lot of the other components of Microsoft.

I personally think Windows 8 is a good platform, and will serve as a good bridge towards computing in the future - my opinion, obviously, but there's precedent for making big changes and people getting used to them (and liking them, eventually) over time.

It is not ergonomic! Are you saying it is? You see what a keyboard and mouse does to your body with issues like carpel tunnel. The prolong use of a touch screen will wreak havoc on the body. Elbows, wrist, and back problems. Here's a minor point, most youngsters here buy cheap a s s monitors with their $2000 gaming machines. I always spend upwards to $1000 on my monitors and to have fingerprints all over my screen would **** me off. Maybe 10 years from now they will have a solution for this but right now, touch on the desktop is not working.

JHBrown said,
It is not ergonomic! Are you saying it is? You see what a keyboard and mouse does to your body with issues like carpel tunnel. The prolong use of a touch screen will wreak havoc on the body. Elbows, wrist, and back problems. Here's a minor point, most youngsters here buy cheap a s s monitors with their $2000 gaming machines. I always spend upwards to $1000 on my monitors and to have fingerprints all over my screen would **** me off. Maybe 10 years from now they will have a solution for this but right now, touch on the desktop is not working.

Touch on a tablet, which is not used for as long, or in the same way as a desktop machine. And Mouse/Keyboard still work as they always have so not sure about your view here. Also touch/trackpads exist with all the gestures supported if you don't want to touch your screen directly.

Not everyone uses their PC in the same way. What Windows 8 offers is choice, and flexibility.

Windows 8 doesn't offer choice at all. That's the whole argument against the stupid thing. You have a touch interface or you have no interface. It's that simple.

Oh herp derp, your mouse works, it's just not natural anymore.

It's a touch UI, not a desktop UI. The sooner Microsoft wake up to themselves and see this, the better.

Its not as if Microsoft is in a dire state like Nokia was, or Yahoo is. Microsoft is making plenty of money, and is in the midst of change the way it operates.

This is what I consider one of the nasty sides to free market business...

Haha, 1% so another 50% of shareholders to convince. Going to be utterly impossible, Microsoft may have made a few mistakes here or there, the company is financially in a very good state and continues to grow.

I am worried they may just try to sell off parts of company for profit. I think "maximizing shareholder value" could be a real risk to the Microsoft brand and what they're trying to accomplish

I have to agree with the other posts. Like him or not, Ballmer has been doing a great job over at Microsoft.

The rise of Apple does shadow his good work in the tabloid tech media (tabloid tech media=The Verge and similar), but the results speak for themselves.

Zune, Kim and many other technologies, division and software that were "disposed".
Right now, Microsoft is milking from Windows, Windows Server and Office as their main source of incomes.

Its not about software its not about hardware its not about windows 8. Its about MSFT stock not paying high enough as Microsoft spends a lot on R&D.

I am sorry Ballmer really hasn't has been doing a good job for shareholders. I know its not easy running a company as big as Microsoft. But I think over last decade they made major blunders and missed opportunities directly attributed to management. Don't get me wrong the had some successes but the bad outways the good.

Melfster said,
....

You mean those wildly crazy shareholders who expect infinite growth in finite markets?
You want CEOs, CFOs will overvalue their company in order to get the stock price up so a select few who own a significant amount can get out at the height of the bubble and avoid insider trading and make a boatload of cash for effectively nothing......

oh wait, that's two other companies and their shareholders......

Someone explain to me how having a 1% stake in a company gives you the authority to topple the CEO and divide the company into separate corporations. Maybe, just maybe, they are investing in Microsoft because they believe its time has come and that it is poised for growth.

Leopard Seal said,
Someone explain to me how having a 1% stake in a company gives you the authority to topple the CEO and divide the company into separate corporations. Maybe, just maybe, they are investing in Microsoft because they believe its time has come and that it is poised for growth.

Growth? Oh Yeah?

Leopard Seal said,
Someone explain to me how having a 1% stake in a company gives you the authority to topple the CEO and divide the company into separate corporations. Maybe, just maybe, they are investing in Microsoft because they believe its time has come and that it is poised for growth.

Bill Gates owns 7%, The Vanguard (?) owns 6%, Ballmer owns 5% and so on.
Most of the MS shares are owned by small shareholder. So, a "charismatic leader" could overtakes Ballmer in a snap.

Someone has to pay for letting Sinofsky run wild and destroy good corporate chemistry among divisions. Someone also has to pay for the initial dud Windows 8 dropped. It appears on the way to decent recovery, but given they hype, someone has to pay. Usually that's the leader.

I think this is all media crap to divert attention from Tim's Cook needed resignation, Apple stock is going down. Investors see opportunity in MS, one of them gets 2% and wants a say in top decisions? Give me a bloody break! Media has really dumb down people: "I phone", Duh... No silly people just cannot see past all this media crap.

Exactly. They specialize in buying shares in undervalued companies. Microsoft has been undervalued for a long time. Apple's plummet is a wake up call.

Responsibility. You get all the credit when things go well in spite of your actions, not because of them and you also get all the blame when things don't go so well. Running Microsoft is no easy task and can't get out of their own way half the time, it would take an incredibly talented and respected person to make the meaningful changes necessary actually work. Sometimes a little posturing like this is good too, a little motivation never hurt anyone.

The entire leadership of MSFT needs to be replaced by new visionaries who willing to change the company culture and make it behave more like a fast agile company or it risks further loosing markets to google, apple, amazon, and Samsung.

under the current leadership, MSFT has:
1) lost the smartphone market to apple/google
2) nearly lost the tablet market to apple/google
3) endangered the windows market with another vista-like user revolt

ANYWHERE ELSE these would be capital offenses which would cause and CEO and lieutenants to step down...except at MSFT where losing every future battle is ok as long as the revenue sheets for this quarter get padded enough.

Stupid idea. Ballmer isn't the problem, in fact I think he's doing well. Anyone who watched his keynote/demo at last years //build/ would've seen a really fluid and personal demo like he's never done before - I'm looking forward to this years //build/ just with the hope of seeing him do that again. I also sort of hoped the Windows Phone commercial about him that they showed at the opening of the show would be put on TV, I don't think a little more exposure for Ballmer would be a bad thing, seemed to work well for Apple under Jobs.

Part of their problems (hopefully are in the past) is letting division management run their divisions like they were separate businesses, rather than business units.

Where they could effectively protect their rice bowls, and show down inter-operation within the same company. The whole WP / Win8 store not being a single monolithic store is a prime example of this, where Steven Sinofsky was trying to force the WP team under his purview in order to allow this cooperation or if they refused (which they did) to block it altogether -- which is why we now have two stores.

Stopping this kind and forcing them to play nicely should've been the responsibility of upper management, but they missed it.

Ballmer should go in my opinion, but I'm not sure right now is the best time for it.

ahinson said,
Part of their problems (hopefully are in the past) is letting division management run their divisions like they were separate businesses, rather than business units.

Where they could effectively protect their rice bowls, and show down inter-operation within the same company. The whole WP / Win8 store not being a single monolithic store is a prime example of this, where Steven Sinofsky was trying to force the WP team under his purview in order to allow this cooperation or if they refused (which they did) to block it altogether -- which is why we now have two stores.

Stopping this kind and forcing them to play nicely should've been the responsibility of upper management, but they missed it.

Ballmer should go in my opinion, but I'm not sure right now is the best time for it.

there is a rumor that the two teams are trying to fix this two stores issue and make just one store.

Microsoft has a history of failed attempts at introducing hardware and software to market either before it's ready for primetime or well after someone else has done it. It's a shame some of their stuff out of Microsoft Research never make retail in a timely fashion because Surface (not the tablet surface) and their house/office implementations of it was first shown of YEARS ago I've even played around with it back in 2007 lol.

Jason Stillion said,
Gates is happily retired spending his fortune on worthy causes / charity around the world.

*cough* *cough* amassing a fortune in the medical industry.

Dot Matrix said,
Breaking up Microsoft would be the worst possible thing to do.

Personally I agree with you 100%. Said that it is also true that you never know what a break up could lead to: Bell Telephone was split and now we have even bigger conglomerates with a nefarious effect on consumers.

With Gates still around as Chairman (probably the biggest stakeholder), I can't see that happening. Will be interesting to see if they do try to break up the company what moves he'll make.

You got that right. MS has the lead in integrating the three screen approach and every other platform will be following the lead and are already doing so. Breaking up MS would be the most idiotic thing in history unless these ValueAct bozos have a bigger stake in Google and they want to do damange. Now I know it sounds stupid to suggest they would put their money on the line to do this but stranger things have happened.

Dot Matrix said,
Breaking up Microsoft would be the worst possible thing to do.

I don't know. Look at the breakup of IBM in the 50s. One year later each new company, formerly division was posting record profits.
Couldn't the same happen here?

deadonthefloor said,

I don't know. Look at the breakup of IBM in the 50s. One year later each new company, formerly division was posting record profits.
Couldn't the same happen here?

Several divisions wont survive, if Xbox ran on its own from the start... We would've never seen the 360. Their online division... no chance.
Skype? will be doomed (never made a profit so far).
Microsoft has a large number of divisions, and only 3 of them are carrying the entire company.
Office, Server and Windows. Which are locked into eachother.
Cant possibly split Server and Windows, its the same OS!
And Office is their Windows flagship software, also half of their server bussiness, if not most of it... depends on Windows and Office together.

I honestly believe that ballmer has been doing a fine job in recent times. He has done many things that have potentially set the company up for a bright future.
Sure, he's had his fair share of missteps, but overall, I believe he's doing a good job and casting him aside in such a sensitive transition process would be a mistake.

Avi Patel said,
I honestly believe that ballmer has been doing a fine job in recent times. He has done many things that have potentially set the company up for a bright future.
Sure, he's had his fair share of missteps, but overall, I believe he's doing a good job.

Agreed, I see no reason to pull Ballmer at this juncture. They just need to keep on trimming the fat, consolidating units to work together and finish the 3 screen initiative that GATES & BALLMER started 10+ years ago..

The problem with MS isn't their products these days necessarily, its the ongoing hate / spite of people who think they should continue to be punished for what they did in the 90s, replacing Ballmer won't change that.

Avi Patel said,
I honestly believe that ballmer has been doing a fine job in recent times. He has done many things that have potentially set the company up for a bright future.
Sure, he's had his fair share of missteps, but overall, I believe he's doing a good job and casting him aside in such a sensitive transition process would be a mistake.

He's not not doing an awful job, but he's mediocre at best. Personally, I can't say I've ever seen so many people complain about their products as much as recently. Win 8 angered people. The new Office and Visual Studio are poorly done, in my opinion. The Surface is a mediocre product and not exactly priced competitively. Windows Phone 8 is a nice mobile OS, but they don't advertise it, thus people aren't buying it, and developers aren't developing for it. And now MS is bribing developers with money.

For as much financial power and market control that Microsoft has, they are being quite lazy with their products, and Ballmer is the one at the helm making most of those calls. Microsoft pretty clearly tried to reinvent themself with fresh, new products, and I think Ballmer is the last stale bit that needs to be tossed.

The problem with Microsoft is they have good products but only a handful of them work together in any meaningful way, each division makes their products without thinking of integrating with other MS products and services. This is the fault of a CEO with no vision or will/ability to get his company all working together to produce a seamless experience, thats why Ballmer should go.

The problem with Microsoft is they have good products but only a handful of them work together in any meaningful way, each division makes their products without thinking of integrating with other MS products and services. This is the fault of a CEO with no vision or will/ability to get his company all working together to produce a seamless experience, thats why Ballmer should go.

You couldn't be further from the truth. The reason why for years now that MS hasn't been able to integrate their products is because of an anti-trust lawsuit that happened in the 90s. That ended in 2010 and since then we've been seeing a greater push of products that work together.

-Razorfold said,

You couldn't be further from the truth. The reason why for years now that MS hasn't been able to integrate their products is because of an anti-trust lawsuit that happened in the 90s. That ended in 2010 and since then we've been seeing a greater push of products that work together.

You realize there is a HUGE difference between bundling your products together forcing people to use them, and making your products work together?

The first one is worthy of an antitrust lawsuit.
The second one is what people want.

I personally think Microsoft is doing very well right now. They have a unified vision, centred around the Metro design philosophy, and while I'm not really a fan of Windows 8 and some of their recent choices, they've never had anything like it before.

I don't know if Ballmer should go, but I'd be curious what some fresh leadership can do for Microsoft.

You realize there is a HUGE difference between bundling your products together forcing people to use them, and making your products work together?

The first one is worthy of an antitrust lawsuit.
The second one is what people want.


You missed my point. Because of the US vs Microsoft lawsuit they had 3 people from the supreme court who stayed at MS and had full access to the source code making sure that Microsoft didn't give themselves an advantage by making their products work together. They also had to share a lot of their APIs to other developers, for the same reason.

Avi Patel said,
He has done many things that have potentially set the company up for a bright future.

The only thing bright about microsoft is office 2013's default bright white U.I

This is what urks me about being a public company. You want to oust the CEO, just buy a chunk of stock and say you're out... (obviously there's A LOT more to that..but still)