Microsoft Offering $1.15 Billion In Convertible Debt

Posted Jun 9, 2010

Microsoft Corporation (NASDAQ:MSFT) has about $40 billion in cash and investments, but the company announced earlier this week that they plan to raise an additional $1.15 billion by selling debt that is convertible to stock. The new funds will be used to repay other debt. This would give Microsoft flexibility to boost dividends or buy back shares.

If Microsoft buys back shares, it would give more value to existing shareholders. Overall Microsoft has $6 billion in short and long term debt. But Microsoft generated $7.4 billion in cash from operations in their most recent quarter.

To prevent share dilution after the debt is converted to stock, Microsoft plans to use “capped call” transactions. This means that Microsoft would automatically buy shares if the stock goes above a certain price.