DealBook: Icahn Urges Apple to Begin Share Buyback

Microsoft Raises Dividend and Announces New Share Buyback

The surprisingly big hike takes Microsoft's dividend yield to around 3.4 percent, ahead of major tech corporations such as International Business Machines Corp and Apple Inc.

But it may not satisfy activist investment firm ValueAct Capital and its supporters, mainly other big investment funds, analysts said. Some investors held out hope for a bigger slice of the company's $70 billion cash hoard, now that ValueAct has an option to take a seat on the software giant's board and exert greater influence over the company.

ValueAct has not publicized its goals. But people familiar with the fund's thinking say it questions Chief Executive Steve Ballmer's leadership and the wisdom of buying Nokia Corp's handset unit to delve deeper into the low-margin hardware business, and that it wants higher dividends and share buybacks.

Microsoft's shares finished 0.39 percent higher at $32.93 on the Nasdaq.

"I expected ValueAct to push for a big lump-sum payment like they have in the past," said Fort Pitt Capital analyst Kim Forrest, who has not spoken with the fund.

"And this is Microsoft saying no."

A hotly anticipated investor meeting on Thursday will give shareholders their first chance to quiz management on who may replace Ballmer, who announced plans to retire within a year after ValueAct pressed for his ouster.

It is unclear how hard ValueAct pushed Microsoft to share more of its $70 billion cash hoard. ValueAct CEO Jeffrey Ubben declined to comment about Microsoft during an industry event in New York on Tuesday.

For years, investors have called on Microsoft to return cash to shareholders rather than invest in peripheral projects, and limit its focus to serving enterprise customers with its vastly profitable Windows, Office and server products.

This month, it announced plans to buy Nokia's phone business and license its patents for 5.44 billion euros ($7.2 billion), a hefty investment that some criticized as a foray into a field already dominated by Apple and Google Inc hardware and software.

Microsoft has lost almost $3 billion on its Bing search engine and other Internet projects in the last two years alone, not counting a $6 billion write-off for its failed purchase of online advertising agency aQuantive.

Investors want a clearer picture of where Microsoft's investments in devices will take the company in coming years, especially as its cash cows, Windows and Office software, come under attack from Apple and Google in the mobile market, and the likes of Evernote and Box begin to develop productivity software.

"They really need to address what Microsoft will look like in a few years, and what the end goal is," Forrest said.

ONE COMPANY TO RULE THEM ALL

Ballmer announced his move just weeks after unveiling a 'One Microsoft' vision focused on hardware and cloud-based services. But poor sales of the Surface tablet, on top of its years-long failure to make money out of online search or smartphones, have cast doubt on the plan.

One of the biggest questions hanging over Microsoft is who will take the helm once Ballmer exits, and whether the successor will hew to his vision. Several sources have said top investors in the company are seeking a turnaround expert from within or without, and have proposed CEOs like Ford Motor Co's Alan Mulally or Computer Sciences Corp's Mike Lawrie.

The Nokia acquisition also brings former, well-regarded Microsoft executive Stephen Elop, who had headed the Finland-based company, back into the fold.

Tuesday's dividend and buyback declaration will help appease some investors for the time being, analysts said.

Microsoft said it will raise its regular dividend, payable on December 12 to shareholders of record on November 21, to 28 cents per share and authorized a new share buyback program.

The 5-cent increase, worth about $400 million a quarter, was about 3 cents more than analysts had expected. The new share repurchase program, with no expiration date, would replace another set to expire on September 30.

Microsoft ranks fourth on Wall Street in terms of actual cash payouts, behind Apple, Exxon Mobil and AT&T Inc. In terms of dividend yield, it ranks fourth among U.S. information technology companies, lagging only Intel Corp, Seagate Technology and Microchip Technology Inc, according to S&P Dow Jones Indices.

"We view this as a further indication that things are changing at Microsoft with respect to corporate governance that we believe could benefit shareholders over the next six to 12 months," Nomura Securities analyst Rick Sherlund said in a note.

But Barclays analyst Raimo Lenschow had expected an accelerated or expanded share buyback plan. The slightly bigger-than-expected dividend increase may signal a willingness to bow to investors' demands.

"A major open question is the timeframe over which the company plans to utilize the new $40 billion authorization, as that will dictate whether the level of the annual buyback is changing," Lenschow wrote on Tuesday.

"While the size of the new buyback program appears on the lower end of investor expectations, which we had pegged at close to $50-60 billion, the lingering question around the timeframe of the program makes the comparison to expectations flawed."

(Additional reporting by Nadia Damouni, Sam Forgione and Svea Herbst-Bayliss; Writing by Edwin Chan; Editing by Saumyadeb Chakrabarty, Robin Paxton, Noel Randewich and Richard Chang)

As Revenue Exceeds Estimates, Groupon Plans $300 Million Share Buyback

The company, which also announced a $300 million share repurchase program on Wednesday, reported a better-than-expected 7 percent jump in second-quarter revenue to $608.7 million, as sales in the United States and Canada climbed 45 percent.

Lefkofsky, who was named interim CEO in February, has pushed on with his mobile-centric strategy since fellow founder Andrew Mason was replaced in February. The former CEO had presided over a precipitous share price decline to below $5 from its $20 debut in 2011.

The stock, which has gained 80 percent in 2013, rose to $10.35 in after-hours trade on Wednesday, its highest since July 2012.

"I think the news about installing Lefkofsky played a big part," said Tom White, an analyst at Macquarie Research. "Investors have been very impressed by the progress he's made since being made interim head and improving metrics particularly in the North America business."

With its core daily deals business model in steep decline, Groupon in recent months has re-invented itself as a more traditional e-commerce business that sells long-term deals, particularly through its smartphone app.

Lefkofsky and other executives told Wall Street analysts on Wednesday that emailed deals, once the linchpin of Groupon's sales strategy, now only accounted for 40 percent of its quarterly revenue. Instead, Groupon's customers were increasingly logging into the site to search for goods they were actively seeking, they said.

"It was only a few short years ago when email was all of the business," Chief Financial Officer Jason Child said. "The good news for us is we see our most active cohort of customers engaging with the marketplace most often. They're browsing, they're searching, they're going in and typing in keywords."

The difference, Lefkofsky added, was that Groupon was transforming from a "demand-generation business to a demand-fulfillment business."

But company management warned it would take several quarters for Groupon to complete its shift in direction and fully enter and compete in an intensely competitive and crowded e-commerce marketplace dominated by giants like Amazon Inc and eBay Inc.

For Groupon to succeed, Lefkofsky said it needed to focus on refining its algorithms to present goods relevant to a user's interests, while also improving its product suite for sellers, which includes rewards tracking programs and credit card processing tools.

BY THE NUMBERS

Groupon's gross billings, or the total value of purchased goods and services - of which the company takes a cut - rose 30 percent in North America, outpacing a 10 percent expansion rate overall.

About 50 percent of its North American transactions came through smartphones and tablets, versus 30 percent a year ago, the company said.

Groupon's success with mobile adoption has been viewed with particular favor on Wall Street. Groupon shares jumped 11 percent on June 14 when Deutsche Bank analysts upgraded the stock, attributing their optimism to the company's progress on the mobile front.

Groupon's revenue in the United States and Canada in the second quarter grew 45 percent, offsetting a 24 percent slide in Europe, the Middle East and Africa (EMEA) and a 26 percent fall everywhere else.

Child told Reuters on Wednesday that while Groupon's international performance has been weak, the company's investment in shoring up its European operations will pay off soon.

"North America continues to see strong growth and we made good progress in EMEA which flipped to positive gross billings growth," Child said. Gross billings in EMEA grew 4 percent in the second quarter. "We're now shifting our focus to the rest of the world."

The Chicago-based company reported quarterly revenue of$608.7 million compared with $568.3 million a year ago. Analysts on average expected $606.2 million in revenue, according to Thomson Reuters I/B/E/S.

It posted a second quarter net loss of $7.6 million, or 1 cent per share, compared with a year ago profit of $28.4 million, or 4 cents a share.

Excluding one-time items, it earned 2 cents a share, level with analysts' expectations.

(Reporting by Gerry Shih; Editing by Carol Bishopric)