Microsoft bond issue hints at SAP or Yahoo takeover

Microsoft's Kiwi expatriate chief financial officer, Chris Liddell has led his company's first-ever foray into the debt market – sparking speculation that his company has a big takeover target in its sights.

Mr Liddell successfully placed a US$3.75 billion bond issue yesterday, despite his company already having $US25 billion in cash. The company has filed to raise as much as $US6 billion.

The move has sparked speculation that the software giant may be positioning itself to swallow a large takeover target; the Wall Street Journal speculates it could be Europe’s largest software company – the enterprise resource planning software maker SAP – or Yahoo.

For the record, Microsoft has filed that the bond will be used for “general corporate purposes.”

The Journal reports that investors are hopeful that Microsoft’s issue could precipitate a thaw in the bond market.

Unlike the bond basket cases that fill headlines, Microsoft was given a AAA rating by both Standard & Poor's and Moody's when it filed for its issue in September.

Among US blue chips, only Exxon Mobil, Automatic Data Processing, Johnson & Johnson and Pfizer also carry the triple-A rating from both S&P and Moody's but Pfizer is on S&P’s downgrade list.

Microsoft (NAS: MSFT) recently suffered its first ever year-on-year decline in sales on the back of the slumping PC market. Yahoo and SAP also reported weak quarters.

Yahoo's (NAS: YHOO) market cap is around $US21 billion; SAP's (NYSE: SAP) around $US47 billion - making either tricky to digest.

Consumer-focussed Yahoo has many problems, but would give Microsoft boost it sorely needs to help chase down Google's huge lead in online search and advertising.

German-based SAP represents a less sexy target, but this tightly run company would give Microsoft a leg-up in the enterprise software market - a good place to be as free and low-cost SaaS alternatives start to nip at its traditional cash cows, Office and Windows.