Currently, the share price of MSFT is around $25. Their market cap is $214B. Their book value (total stockholder's equity) is around $46B.
Suppose that they wanted to issue debt to purchase back its own shares. Their debt is very small, and because theire financial data is so healthy, they want to borrow $200B from aspiring bond investors who want MSFT bonds. Of course, after raising this much leverage, their debt/equity would be more than 4.3x.
I have quite a few questions as to what this transaction would do to their balance sheet. I would greatly appreciate it if you could give me assistance here. NOTE: I'm not a student, but just an armchair economist/econometricist.
Q1: I was told that the book value would DECREASE if they were to buy back their shares. I realize that their market cap would DECREASE if MSFT bought back their own shares, becuase there are fewer shares in the open market. Basically, what would happen to their balance sheet if (a) MSFT rased $200B in leverage, and (b) they bought back their own shares at $25?
Q2: Who would then own the corporation, and, thus, enjoy the retained earnings?
Q3: What is *PREVENTING* from MSFT from becoming private again? By purchasing its own shares, they would be doing their shareholders a big favor.
Here is the most recent balance sheet of MSFT below.
Period Ending 30-Jun-10
Assets Current Assets Cash And Cash Equivalents 5,505,000 Short Term Investments 31,283,000 Net Receivables 15,198,000 Inventory 740,000 Other Current Assets 2,950,000
Total Current Assets 55,676,000 Long Term Investments 7,754,000 Property Plant and Equipment 7,630,000 Goodwill 12,394,000 Intangible Assets 1,158,000 Accumulated Amortization - Other Assets 1,501,000 Deferred Long Term Asset Charges -
Total Assets 86,113,000
Liabilities Current Liabilities Accounts Payable 8,564,000 Short/Current Long Term Debt 1,000,000 Other Current Liabilities 16,583,000
Total Current Liabilities 26,147,000 Long Term Debt 4,939,000 Other Liabilities 7,445,000 Deferred Long Term Liability Charges 1,407,000 Minority Interest - Negative Goodwill -
Total Liabilities 39,938,000
Stockholders' Equity Misc Stocks Options Warrants - Redeemable Preferred Stock - Preferred Stock - Common Stock 62,856,000 Retained Earnings -16,681,000 Treasury Stock - Capital Surplus - Other Stockholder Equity -
Total Stockholder Equity 46,175,000
Net Tangible Assets 32,623,000