Microsoft, ValueAct Said to Discuss Director Appointment

Microsoft Corp. (MSFT) is considering giving ValueAct Holdings LP a board seat in response to pressure from the activist shareholder, a person with knowledge of the matter said.

ValueAct, which in April disclosed a stake of about $1.9 billion in Microsoft, is urging the company to focus more on business software and Internet-based cloud services, putting less emphasis on consumer products, said the person, who asked not to be identified because the talks are private. ValueAct is coordinating efforts with other shareholders, this person said.

Chief Executive Officer Steve Ballmer is struggling to introduce products that capitalize on a shift toward mobile computing amid declining sales of machines running Windows. The world’s largest software maker reported fourth-quarter profit on July 18 that missed analysts’ projections by the biggest margin in at least a decade. Results also were hurt by a $900 million writedown of unsold inventory of Microsoft’s newly introduced Surface tablet.

If Microsoft doesn’t grant ValueAct a seat, the investor will probably start a proxy fight to appoint a director, the person said. After the earnings report, ValueAct has a greater chance of winning, the person said.

“The earnings release and the execution plays to ValueAct,” said Pat Becker Jr., a fund manager at Becker Capital Management Inc. in Portland, Oregon, which owns Microsoft shares. “Those two items, together with the disappointing earnings release and how big of a message was sent with the decline in the stock price, at a minimum, create a conversation.”

Proxy Matters

Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment, saying the company doesn’t discuss private meetings.

Reuters reported yesterday that Microsoft has met with ValueAct to discuss a board seat.

The investor has met with Chief Financial Officer Amy Hood and her predecessor, Peter Klein, the person said.

Any proxy matters must be filed by shareholders by the end of August, according to a person familiar with the matter. Microsoft usually holds its annual meeting in November.

ValueAct Chief Executive Officer Jeffrey Ubben said at a conference in New York in April that ValueAct held almost 60 million shares in Microsoft. That would put San Francisco-based ValueAct among the top 20 biggest investors, according to data compiled by Bloomberg. ValueAct manages more than $10 billion in assets, according to its website.

Ubben didn’t respond to requests for comment.

Microsoft fell 11 percent to $31.40 at yesterday’s close in New York, the most since January 2009.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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