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Saturday, January 11, 2014
Microsoft CEO search twists and turns have cost Ballmer, Gates billions With Ford CEO Alan Mulally out of the picture, Microsoft's stock will continue to slide, predict Wall Street analysts
Current Microsoft CEO Steve Ballmer has watched $1.1 billion evaporate
from the value of his company stock as the selection process for a
successor has dragged on and investors have expressed disappointment in
the firm's apparent turn toward an internal candidate.
Since the Dec. 4 high for the stock, shares have fallen almost 9%,
lowering the paper value of Ballmer's holdings by $1.1 billion, to $11.8
billion as of mid-day Thursday. Chairman and co-founder Bill Gates, who
owns slightly more shares than Ballmer, "lost" $1.2 billion in his
It's possible that the two will be hit even harder in the days and weeks to come.
On Thursday, MKM Partners analysts Israel Hernandez and Tyler Radke
predicted that Microsoft's price will drop into the low $30-range
because the company will probably select its new CEO from the pool of
current company executives.
The forecast was a repeat of one Hernandez made in early December
when he said Microsoft's share price would fall if Alan Mulally, CEO of
Ford Motor, wasn't selected by the Microsoft board to replace Ballmer.
Mulally took himself out of the race
on Tuesday when he told the Associated Press that he wanted "to end the
Microsoft speculation because I have no other plans to do anything
other than serve Ford."
Investors had believed that Mulally, as an outsider and someone who
had cut costs and sold off divisions to turn around Ford's fortunes,
would be the most likely CEO to rid Microsoft of its unprofitable or
marginally-profitable pieces, like the Bing search operation and Xbox
game console business. That, investors believed, would in the short term
improve the bottom line and boost share price.
"A large proportion of the stock's move in 2013 was driven by
speculation that Mulally would come in and return cash to shareholders,
cut costs and attack sacred cows such as Bing and Xbox," wrote the MKM
analysts in a note (subscription required) published on Barron's today.
Microsoft's stock price climbed by more than a third during 2013, but most of that increase came after
Ballmer's abrupt retirement announcement: Between Aug. 21 and Dec. 4,
shares rose 23.2%, but began to fall again when talk circulated that
Mulally and other outsiders were probably out of the running.
As Mulally's prospects waned throughout December and into January, investors continued to drive down the stock.
Hernandez and Radke today also said, "We believe it is increasingly
likely that an internal candidate will be promoted to CEO," echoing
other reports, including from the Wall Street Journal, that said
current executives Satya Nadella and Tony Bates, and Nokia's former CEO,
Stephen Elop, who was once at Microsoft, are now the leading choices.
Investors have largely believed an outsider would be a better pick,
seeing an insider as much more likely to continue the strategic pivot
that Ballmer announced in 2012, which many believe to be misguided.
An internal candidate would also demonstrate that Gates, and to a
lesser extent, Ballmer, will continue to call the shots from the board,
anathema to those investors who see the pair as part of the problem with
Microsoft's inability to make headway on mobile.
Gates and others have hinted that the new CEO would have to have
technical chops, which pointed toward someone already inside the firm or
an outsider with engineering experience in device hardware or software.
At Microsoft's November shareholder meeting, Gates said the next CEO
needed "a lot of comfort in leading a highly technical organization and
have an ability to work with our top technical talent." And when John
Thompson, the director leading the search committee, announced in
December that the new CEO would be announced in early 2014, he cited also Gates' criteria nearly word for word.