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"Microsoft shares are up more than 2 percent today to more than $32 per share after long-time analyst Rick Sherlund for Nomura upgraded the companys stock to a buy.
In April, Nomura downgraded the company to neutral on what Sherlund referred to as poor fundamentals. But now, things are looking up. Why?
Activist investors.
Weve written about activist investor ValueAct before the investment group spent $2 billion to take a 1 percent stake in Microsoft (NASDAQ: MSFT) back in April when the share price was below $30 per share.
The organization has a history of taking a stake in a struggling company and pushing for major changes.
On Thursday, Sherlund wrote that ValueAct is likely to have the support of shareholders when it pushes for a seat on Microsofts board of directors.
Thats a tricky thing for Microsoft, though. Bill Gates is still chairman of the board, and hes good friends with CEO Steve Ballmer. Its no secret some shareholders are fed up with Ballmer and want to see him step down.
Among the many shareholders we spoke to, Steve Ballmers strategy inspires little confidence, Sherlund wrote.
Microsoft was slow to respond to the smartphone and tablet market, Sherlund wrote, and that has cannibalized the companys business. He described shareholder frustration as at an all-time high when the company reported disappointing earnings in June and the share price tumbled.
Sherlund suggested in his note that it might be best to give ValueAct a seat on the board and have them work behind closed doors, rather than opening it up to a public proxy fight. That, however, would likely take longer.
A decision by the board at Microsoft to offer a nomination for a board seat could keep the activist agenda behind closed doors and take longer for shareholders to see potential benefits, Sherlund wrote.
Things could get interesting in the coming weeks. ValueAct must notify Microsoft of a proxy fight by Aug. 30 next Friday and there is an analyst meeting at Microsoft on Sept. 19.
ValueAct will likely call on Microsoft to make some big changes. Sherlund who is likely well-sourced on this believes ValueAct will suggest Microsoft sell off Xbox to another tech company.
Xbox is cool, Sherlund wrote, but by our estimates Microsoft has not made money at this.
And for shareholders, thats an important point. For activist shareholders, its a sticking point. "
In April, Nomura downgraded the company to neutral on what Sherlund referred to as poor fundamentals. But now, things are looking up. Why?
Activist investors.
Weve written about activist investor ValueAct before the investment group spent $2 billion to take a 1 percent stake in Microsoft (NASDAQ: MSFT) back in April when the share price was below $30 per share.
The organization has a history of taking a stake in a struggling company and pushing for major changes.
On Thursday, Sherlund wrote that ValueAct is likely to have the support of shareholders when it pushes for a seat on Microsofts board of directors.
Thats a tricky thing for Microsoft, though. Bill Gates is still chairman of the board, and hes good friends with CEO Steve Ballmer. Its no secret some shareholders are fed up with Ballmer and want to see him step down.
Among the many shareholders we spoke to, Steve Ballmers strategy inspires little confidence, Sherlund wrote.
Microsoft was slow to respond to the smartphone and tablet market, Sherlund wrote, and that has cannibalized the companys business. He described shareholder frustration as at an all-time high when the company reported disappointing earnings in June and the share price tumbled.
Sherlund suggested in his note that it might be best to give ValueAct a seat on the board and have them work behind closed doors, rather than opening it up to a public proxy fight. That, however, would likely take longer.
A decision by the board at Microsoft to offer a nomination for a board seat could keep the activist agenda behind closed doors and take longer for shareholders to see potential benefits, Sherlund wrote.
Things could get interesting in the coming weeks. ValueAct must notify Microsoft of a proxy fight by Aug. 30 next Friday and there is an analyst meeting at Microsoft on Sept. 19.
ValueAct will likely call on Microsoft to make some big changes. Sherlund who is likely well-sourced on this believes ValueAct will suggest Microsoft sell off Xbox to another tech company.
Xbox is cool, Sherlund wrote, but by our estimates Microsoft has not made money at this.
And for shareholders, thats an important point. For activist shareholders, its a sticking point. "
