Module 5

Open market repurchase  Tender offers  Private Negotiations

Open market repurchase s of common stock is virtually identical to what happens when any other investor purchases the company stock through a broker. Microsoft Corporation’s Share Repurchases On September 22, 2008, we announced the completion of the two repurchase programs approved by our Board of Directors during the first quarter of fiscal year 2007 to buy back up to $40.0 billion of Microsoft common stock. On September 22, 2008, we also announced that our Board of Directors approved a new share repurchase program authorizing up to $40.0 billion in share repurchases with an expiration date of September 30, 2013. We repurchased 318 million shares for $8.2 billion during the fiscal year ended June 30, 2009; 101 million shares were repurchased for $2.7 billion under the repurchase program approved by our Board of Directors during the first quarter of fiscal year 2007 and 217 million shares were repurchased for $5.5 billion under the repurchase program approved by our Board of Directors during the first quarter of fiscal year 2009. As of June 30, 2009, approximately $34.5 billion remained of the $40.0 billion approved repurchase amount. All repurchases were made using cash resources. The repurchase program may be suspended or discontinued at any time without notice.

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Fixed price tender offer repurchases Dutch auction share repurchases

MC(New) = MC (Old) - TO + W MC(New) :Post Repurchase Market Cap MC (Old) : Pre Repurchase Market cap TO: Tender Offer W: Shareholder Wealth Effect

Dividend or Personal Tax hypothesis  Leverage hypothesis  Information or signaling hypothesis  Wealth transfers among shareholders hypothesis  Defense against outside takeovers

An exchange offer provides the right or option to exchange part or all of one form of security for different form of security of the same firm.

Leverage increasing or decreasing  Implied increases or decreases in future cash flows  Implied Undervaluation or overvaluation of common stock  Management Share ownership is increased or decreased.  Free cash flows increased or decreased

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