Analysts at Nomura Equity Research believe that ValueAct Capital Management, the activist hedge fund managed by Jeff Uben will win a seat in the board of directors of Microsoft Corporation (NASDAQ:MSFT).
It has been reported that ValueAct Capital Management, which owns nearly 1 percent of the outstanding shares of Microsoft Corporation (NASDAQ:MSFT) is in talks with the management of the software giant to appoint its own representative to the board. Nomura Equity Research analyst, Rick Sherlund said that the support of large shareholders in the company for the activist hedge fund is apparent.
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Microsoft May Grant ValueAct A Board Seat
Sherlund and his fellow analysts at the research firm believe that Microsoft Corporation (NASDAQ:MSFT) will probably grant ValueAct Capital Management with a board seat because many of its shareholders were disappointed for its failure to optimize shareholder value.
In addition, the analysts speculated, “We suspect Microsoft figures it is better to work through the ValueAct agenda in private rather than in a public proxy solicitation process.” Sherlund and his colleagues also believe that that the activist hedge fund is ready to launch a proxy fight against Microsoft Corporation (NASDAQ:MSFT) if it denies its request for board seat in August.
According to them, ValueAct Capital Management needs to inform Microsoft Corporation (NASDAQ:MSFT) regarding its plan to enter a proxy fight between July 31 and August 30 if it intends to do so. The analysts added, “We had expected ValueAct to do so and go public with its agenda of suggestions to enhance shareholder value, which we have thought would be viewed favorably by investors and a positive catalyst for the stock, potentially involving the purchase to up to 20 percent of the company’s shares…” They added that the company could borrow from its offshore account to provide the necessary cash to double its dividend.
A Positive For ValueAct To “Work Inside A Quieter, Private Capacity”
Furthermore, Sherlund and his colleagues emphasized that it would be positive for ValueAct Capital Management to have a representative to work with independent directors in the board of Microsoft Corporation (NASDAQ:MSFT) to promote change. According to them, “The benefit to the stock may take longer to realize since the agenda of change will not be in the public domain, but rather work in the inside in a quieter, private capacity.”
The analysts believe that the probability of effecting change in Microsoft Corporation (NASDAQ:MSFT) over time is clearer once that ValueAct Capital Management wins a board seat.
Sherlund and his colleagues emphasized, “Investor activism is a positive for the stock, while the transition of the business to a services model and the related near-term impact to earnings was an unfortunate surprise to investors.” According to them, the surprise poor results and outlook reported by Microsoft Corporation (NASDAQ:MSFT) created unnecessary damage to investor sentiment and ignited their desire for change in the company.