Microsoft Corp signed a pact to cooperate with ValueAct Holdings LP, an agreement that could bring an activist shareholder onto the board of the world’s largest software maker as it undergoes a leadership change.
Microsoft said on Friday that it will hold regular meetings with ValueAct Capital president Mason Morfit and that it “selected Microsoft directors and management to discuss a range of significant business issues.”
The Redmond, Washington-based company said ValueAct has the option of having Morfit become a director beginning at the first quarterly board meeting of next year.
“Our board and management team are committed to enhancing growth and value for Microsoft shareholders, and we look forward to ValueAct Capital’s input,” Microsoft chief executive officer Steve Ballmer said in a statement.
The announcement came at Friday’s deadline for proxy contests and other matters for the company’s November shareholder meeting, and during a period of drastic change for Microsoft. Beset by competitors including Apple Inc and Google Inc that have shifted the technology landscape away from Microsoft’s core PC industry, the company last week said Ballmer would be retiring within 12 months.
Microsoft’s board has established a search committee to seek a new CEO. If Morfit joins as a director next year, he could become involved in the search if a successor to Ballmer has not yet been found.
ValueAct in April had disclosed a stake of about US$1.9 billion in Microsoft. The investor has been seeking a return of more money, according to a person with knowledge of the matter. Microsoft has US$77 billion in cash and investments.
ValueAct had also been negotiating for a board seat, a person with knowledge of the matter said in July. If the shareholder did not reach an agreement with Microsoft, ValueAct was mulling a proxy contest to gain a seat, the person said.
“It’s a concession to shareholders,” Seattle-based McAdams Wright Ragen analyst Sid Parakh said. “They do realize they would have probably lost a proxy battle, which wasn’t worth it, so it seems like it’s a good compromise.”
In a statement, Morfit said Microsoft is at a “critical inflection point” and added that he was looking forward to working with the board and management.
Microsoft said ValueAct owns about 0.8 percent of its shares outstanding and has US$12 billion under management. The pact means ValueAct will not be involved in discussions of this year’s annual dividend, which typically take place at the board’s September meeting.
Under the agreement, ValueAct also said it would not propose or seek any extraordinary transaction like an exchange offer and would not pursue or participate in a proxy contest.
ValueAct also favors having Microsoft focus more on business software and Internet-based cloud services, putting less emphasis on consumer products, the person with knowledge of the matter said.
In several years, “we’ll stop talking about PC cycles and instead talk about Microsoft as the largest cloud-computing company in the world,” ValueAct CEO Jeffrey Ubben said in April.
Activists have recently targeted other technology companies. Billionaire investor Carl Icahn is pushing Apple to return more of its US$146.6 billion in cash via a buyback, and has fought for Dell Inc to remain public and pay out money, instead of going private in a leveraged buyout.
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