Microsoft Builds $3.75 Billion War Chest

Microsoft on Monday disclosed plans to issue up to $3.75 billion in debt in the first public bond offering in the company's history. Among other things, the software maker said money raised from the bond sale could be used to fund acquisitions.

"The net proceeds from the sale of the notes will be used for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of our capital stock, and acquisitions," Microsoft said Monday in a filing with the federal Securities and Exchange Commission.

The sale will occur in three stages. Microsoft will issue $2 billion in five-year notes, $1 billion in 10-year notes, and $750 million in 30-year bonds. Pricing was not disclosed.

The debt issue may signal that Microsoft is looking to build a war chest to fund acquisitions. The company on various occasions has expressed interest in acquiring all, or parts, of Internet rival Yahoo. Such a move could help Microsoft close the gap between itself and Google in the key Internet search market.

Microsoft might also be looking at acquisitions as a defensive measure.

Oracle on April 20 disclosed plans to acquire Sun Microsystems for $7.4 billion, while IBM in recent months has bought a number of software companies. Amid such consolidation, Microsoft officials may feel the need to complete acquisitions of their own in order to not be outflanked by rivals building out their portfolios through the M&A markets.

One possibility is that Microsoft may be mulling a takeover of German business applications developer SAP as a way to counter Oracle's growing influence in enterprise software market. Some analysts speculate that IBM might also be eyeing SAP.

Others believe that Microsoft is simply taking advantage of a market that's favorable to corporate borrowers. The market for T-bills and other government-backed debt instruments has fallen flat, renewing interest in commercial paper. Microsoft could use some of the funds from the bond issue to buy back shares and boost its stock price.

Microsoft shares were off 0.51%, to $19.32, on Monday -- despite the company's announcement that it plans to release a final version of the Windows 7 operating system in time for the holiday shopping season.

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