Others have finally said the obvious, in regards to the Microsoft Bond offering:

Redmond, Wash.-based Microsoft is sitting on $25 billion in cash, so the company doesn’t need the bond proceeds “unless they have something big in mind,” says Reena Aggarwal, professor of finance at Georgetown University’s McDonough School of Business. Microsoft referred questions on the use of the bond proceeds to the company’s preliminary prospectus, which stated the issue would fund “general corporate purposes” that may include funding for working capital , capital expenditures, repurchases of capital stock and acquisitions.

Microsoft has wanted in on the search market for some time.  As all internal development efforts lead to sub-standard results leading to a lack of penetration in the search market.

If you know anything about Microsoft, their growth is based on technology acquisition.  While still a software company, the majority of their “new” ideas are things others created.  MSFT swoops in, makes a purchase and brands good as Microsoft products.

My guess is that leadership at MSFT sees an opportunity and will buy their way into a competitive position by picking up Yahoo!  If a deal cannot be had with Y!, look for Microsoft to go after Ask.com.

As I looked over the business headlines today there was one headline that really, really stood out to me:  Microsoft to raise $3.75B in first debt offering.  

Why did this stick out?  Simply because this company is flush with cash.  As of 3/31/09 the company had roughly $25B in cash and short term investments, so, obviously, they were not having a hard time with funding.

If you look a bit into the justification MSFT gives as to why they are moving forward with the Debt Offering, you’ll see:

The software maker said it will use proceeds from the sale for general corporate purposes, including possible acquisitions and stock buybacks. 

First – a stock buy back is usually a very poor idea.  It really doesn’t help create that much value for the share holders.

Second – We’ve already established that Microsoft has piles of cash, why would they need to sell debt for “general corporate purposes?”.  Again, makes no business sense and adds no share holder value.

I think the reason for the offering is the “including possible acquisitions” that is mentioned in the SEC filing.  It would make more business sense to have cash reserves and funding acquisitions via debt – cheap debt – during times of economic hardship.

Has the target on Yahoo! suddenly increased in size?