It was disclosed this morning on the Federal Trade Commission (FTC) website and reported by Street Account that the FTC has granted early termination or antitrust clearance for some undisclosed “transaction” involving Microsoft Corporation (NASDAQ:MSFT) and ValueAct Master Fund, LP. It had been previously disclosed that Jeff Ubben's ValueAct has established a 1% interest in Microsoft, which does not in itself require a Hart-Scott-Rodino premerger notification with the FTC, if ValueAct intends to be an activist then they are likelu required to file HSR with the FTC given the size of their investment.
Past Activities Of ValueAct With Other Companies
Based on past activities of ValueAct with some other companies they have been involved in, Nomura believes that ValueAct is likely approaching Microsoft Corporation (NASDAQ:MSFT)’s largest shareholders and may be gaining their support for a Board seat. If they were to ask for a seat and Microsoft’s Board were to decline, then the process available to them would be to file this summer for inclusion in the proxy statement to ask for a seat to replace an existing Board member. To advocate for change to enhance shareholder value, ValueAct might be best able to do this quietly from the inside and appeal to independent directors rather than having to work from the outside in full public view, which has not been the activism style of ValueAct historically.
ValueAct Advocates For Changes Via Nomura
We are of the view that there are a number of things that could be done to enhance shareholder value at Microsoft Corporation (NASDAQ:MSFT) and that ValueAct may be a catalyst to accomplish things that might not otherwise be achieved.
We are checking with legal experts to see if we can gain additional insights from the confidential FTC filing. Our view is this is all good for the stock as this summer likely holds some corporate drama as ValueAct advocates for changes, and we think a battle for a Board seat likely heats up and details spills into public view. Separately, Russell re-balance upcoming
The Russell Reconstitution will take place at the close on Friday, June 28, 2013. Russell will announce the preliminary list of changes after the U.S. close on June 14, 2013, and revisions on June 21, 2013.
We expect Russell will increase the float for Microsoft Corporation (NASDAQ:MSFT) from 90% to 100% due to a sell down in stakes by Mr. Gates and Mr. Ballmer based on a July 2012 10K filling, increasing its weight from 1.58% to 1.75% in the Russell 1000 during the Russell Reconstitution. As a result, we expect Russell index managers will need to buy 21.727 MM shares or $758 MM of MSFT (or 0.43 times the ADV) at the close on June 28, 2013, and expect the net buy in Microsoft Corporation (NASDAQ:MSFT) would make it the third largest name to buy in terms of $value during the reconstitution.