ValueAct Capital gets a seat on Microsoft’s board: Now what?

Amid the extremely wide and thin reporting on activist investor Mason Morfit’s joining Microsoft’s board, there is surprisingly little information.

What we know: Morfit was jostling Microsoft for a shakeup in the weeks leading up to the putsch that took place last week, when CEO Steve Ballmer announced he would be leaving the company within 12 months, and more likely in the next few (see Microsoft’s Ballmer stepping down in next 12 months). Bill Gates, the chair, must have been in on this, and most of the board, too.

The word is that Morfit, whose firm owns 0.8% of Microsoft stock (~2.4 billion’s worth), was threatening a proxy fight, and Microsoft obviously wanted to avoid that mess. So, Morfit now joins the board and the proxy battle is averted.

The thing I can’t find out anywhere is this: what does Morfit want to get the company to do? Yes, he wants to increase the value of his stake (and other shareholders’) but how? Does he buy into the vision that Ballmer articulated last fall, that Microsoft should become a ‘devices and services company’? I bet not, since he’s asked for and received Ballmer’s head.

Let’s assume that he thinks that some part of Ballmer’s plans are misaligned with the marketplace. Which might they be? Well, there was that $900 million write down on on Surface tablets a month ago. That was a large poke in the eye.

Let’s imagine that Morfit is a smart guy, and thinks Microsoft is pissing away billions in the effort to gain a foothold in the marketplace for tablets and smartphones, and it’s going nowhere. Imagine that he thinks that Microsoft’s dominance in desktop operating systems is done, because the world — and even the enterprise — is moving away from desktop PCs. And, although Xbox is an interesting product line, it doesn’t fit with the rest of Microsoft’s profitable products, which are mostly tools for the world of business.

My hunch is he’s going to be pushing for Microsoft to become the new IBM, and to spin off or sell off everything else.

One thing that an activist investor can do is bring in new leadership. I am betting Morfit has someone specific in mind for CEO, and it’s likely to be someone that leans toward enterprise software. And we’re likely to find out in short order.

 

Relevant Analyst
Stowe Boyd

Stowe Boyd

Lead analyst, future of work Gigaom Research and stoweboyd.com

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