ValueAct Capital Forces its way onto Microsoft’s Board
REDMOND, WA – On Friday, news emerged that Microsoft (NASDAQ:MSFT) was giving a seat on its board to a director from ValueAct Capital Management LP. The announcement marks the first time that an activist investor has taken a seat on Microsoft’s board and comes only a week after CEO Steve Ballmer disclosed that he would be stepping aside.
According to Ballmer and other Microsoft officials pressure from ValueAct played no role in the surprise announcement about his retirement; however, the decision to add an investor who owns less than one percent of the company indicates the pressure that Microsoft is facing. The company’s shareholders have become increasingly vocal in their criticism of the software giant for not responding to a shifting market increasingly driven by mobile devices, internet search, social media, and cloud computing.
Some shareholders have expressed hopes that ValueAct would urge the board to choose a new direction for the company, both in its selection of the next CEO and in charting a course that could stimulate the company’s share price. According to Nomura analyst Rick Sherlund, ‘ValueAct has very much surfaced the interests of shareholders, and one of those interests is management succession.’
Other analysts have speculated that ValueAct was attempting to wage a proxy fight and that Friday’s announcement was part of a deal to keep the fund’s stake below 5 percent. ValueAct had announced in the spring that they had bought a stake in Microsoft, and as of Friday’s close the fund’s 0.8 percent stake was worth $ 2.2 billion.
While it was unlikely that ValueAct would have sought a larger stake in Microsoft, the fund only managed $ 12 billion in assets, the move is evidence to the growing influence that activist investors have over boardrooms from Dell (NASDAQ:DELL) and J.C. Penney Co. (NYSE:JCP).
In a recent client alert, the law firm Sullivan & Cromwell warned ‘the playing field has changed fundamentally, and the changes have resulted in greater influence for shareholders, applying the vocabulary and mind-set of 1980s takeovers to today’s activists is likely to be counterproductive.’
ValueAct founder Jeffrey Ubben has publicly attacked entrenched corporate leadership in the past, and while he has been less critical of Microsoft, at least publically, Ubben believes the company can win in the long-term. Unlike other activist investors, such as Carl Icahn or Bill Ackman, ValueAct positions itself as a management-friendly activist. ValueAct tends to take positions in a small number of companies at once. The firm has landed board posts at companies including Motorola Solutions Inc. (NYSE:MSI), Adobe Systems Inc. (NASDAQ:ADBE), and Valeant Pharmaceuticals International Inc. (NYSE:VRX).