Auction results boost Microsoft

Microsoft received a modest vote of confidence from Wall Street on Friday as it emerged that few investors had been willing to sell back their stock to the company in an unusual $20bn Dutch auction.

The fact that the software company was only able to purchase around a fifth of the stock it had offered to buy back suggests that there are relatively few sellers of the shares at current levels and could help to support the stock in the future, according to analysts.

The shares rose around 3 per cent on Friday morning on news of the auction results.

Microsoft said it had bought back 155m shares at the maximum price it had offered of $24.75, or $3.8bn in all. The remaining $16.2bn that had been set aside for the auction will be added to the company’s existing stock repurchase plan, raising the total authorized repurchases to $36.2bn by 2011.

The $20bn auction, announced a month ago, was part of a series of actions by Microsoft to revive its dormant share price by returning more of its cash to shareholders.

However, at $25.48 on Friday morning, the shares were still trading at roughly the level they stood at five years ago.

When Microsoft announced the Dutch auction a month ago, the price of up to $24.75 a share represented a 9 per cent premium to the market price.

News that only 155m shares had been tendered in the auction appeared to suggest that there were few willing sellers on Wall Street and should put “a nice floor in the stock going forward,” according to Charles Di Bona, an analyst at Sanford C Bernstein.

With few investors taking up the offer, which represented up to 8 per cent of the outstanding shares, the benefit to Microsoft’s earnings per share from a lower share count will be less than it would have been.

As a result, analysts said Microsoft was likely to spend the unused $16.2bn rapidly in the coming weeks on buying back more shares in the open market to achieve the original plan.