As regular readers know, I’m a great believer in the virtues of corporate raiders. My colleague Arpit Gupta has written an excellent post on hedge fund legend David Einhorn’s outsider effort to shake up Microsoft and what it means for the economy as a whole. Like most observers, I was baffled by Microsoft’s decision to pay $8.5 billion for Skype. While I’m sure there’s plenty that I don’t and won’t ever understand about the strategic case for the acquisition, it looks suspiciously like a company sitting on a vast hoard of cash and spending it in a highly undisciplined manner:
It’s difficult to throw away this much money without having the occasional hit. The XBox wasn’t bad. But the collective impact of many companies simultaneously burning money is substantially weaker economy-wide capital allocation. We don’t want the people who made a lot of money in the ‘90s deciding what to invest in today; in general people and organizations don’t manage to remain at the entrepreneurial frontier all of the time. We want shareholders to take the billions they made from Microsoft and give it to the Microsoft of tomorrow. And that’s just not possible as long as Microsoft remains hideously mismanaged from the point of view of intelligently handling shareholder interests — as long as they can neither reinvest assets profitably or have the good sense to give money back to the owners of the company.
Arpit ties his argument back to the case for relationship finance in a manner I find convincing.