Microsoft opens door for ValueAct

Microsoft opens door for ValueAct to join its board

Summary: Microsoft may be getting a new board member, investment firm ValueAct's President Mason Morfit.

Microsoft and San Francisco-based investment firm ValueAct Group signed a pact on August 30 that opens the door for ValueAct President Mason Morfit join Microsoft's board of directors.

ValueAct had been rumored to be lobbying to join Microsoft's board for the past few months. Some said ValueAct officials wanted to see Microsoft CEO Steve Ballmer step down -- something which Microsoft announced earlier this month would be happening some time in the next 12 months. (For what it's worth, Ballmer told The Seattle Times that his retirement had nothing to do with ValueAct.)

ValueACt owned as of late July 66,865,530 shares of Microsoft stock, representing 0.8 percent of Microsoft's issued and outstanding shares of Common Stock. According to Reuters, Microsoft Chairman Bill Gates and CEo Ballmer own about nine percent of Microsoft's shares between them. In spite of its comparatively small share, ValueAct is now considered one of Microsoft's largest shareholders.

The new pact specifies that Morfit and select members of Microsoft's board and management will hold regular meetings. It also allows ValueAct to have Morfit join Microsoft's board of directors starting at the first quarterly board meeting after the November 2013 Microsoft shareholders meeting. As part of the agreement with Microsoft, ValueAct agreed it wouldn't engage in a proxy contest, meaning it wouldn't use hostile means to advise, control, change or influence the board.

ValueAct has said little publicly about what it wants to see happen with Microsoft going forward. Morfit's statement in the August 31 press release noted Microsoft was at a "critical inflection point" in its history and mentioned he wanted to "create value for all shareholders."

In July, ValueAct's founder Jeffrey Ubben said investors had not appreciated Microsoft's back-end software it sells to power servers and databases. That comment has led many to believe ValueAct is more interested in seeing Microsoft position itself as a software and services company and not so much as a consumer/devices company.

Ballmer and John Thompson, the lead independent director of Microsoft's board, told me recently that Microsoft had no intentions of de-emphasizing or getting rid of the devices and consumer parts of the company's business. They said they believed Microsoft needed to be a player in both the consumer and enterprise businesses in order to continue to grow.

Microsoft's board is currently comprised of nine individuals, including Chairman Bill Gates and CEO Ballmer. It's not clear whether Ballmer will continue to have a seat on Microsoft's board once he retires.