The Ballmer Bounce Fizzles

 | Aug 28, 2013 | 2:30 PM EDT
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Remember the bounce in Microsoft (MSFT) shares after CEO Steve Ballmer announced his retirement?

Well, the stock is now only 2.4% above the pre-announcement level. So what happened?

Investors initially felt like they were going to see Microsoft's sum-of-the-parts value unlocked. But the last few days of trading is a sign that investors are waking up to the reality that there's no guarantee Microsoft will do anything radical to unlock the kind of value they would ideally like to see.

The most radical change would be hiring an outsider to come in and possibly break up the company into a bunch of mini Microsofts. That person could also spend a lot of its cash hoard on an aggressive stock buyback plan.

But at the end of the day, Bill Gates is still the largest Microsoft shareholder and head of the committee responsible with hiring Ballmer's successor. Does Gates want to see Microsoft busted up? Almost certainly not.

Therefore, what's the most likely outcome of the CEO search? I would say promoting an insider whom Gates trusts not to tear apart his company and can present to outsiders as a change leader.

My guess is that the most likely candidate is the unknown Satya Nadella, who currently heads up Microsoft's successful Cloud and Enterprise business and previously ran the equally impressive Server and Tools division.

Would Nadella lead an aggressive change effort? I think it's unlikely.

The biggest changes I envision are probably an increased buyback, shedding the Online Services Division (and maybe getting rid of the Bing search engine), and spinning off the Xbox division. But I don't think it's likely we'll see all that happen.

More likely, Nadella will keep Xbox and Bing while maybe shuttering the rest of the Online Services group and giving a little bit more of a buyback.

That's not going to excite Wall Street, therefore, some people are pulling back and selling the stock, rather than waiting for future changes.

From a stock-price perspective, Microsoft's barely ahead of the game now than when Ballmer was still in firmly charge. The company is still facing the challenges of a shrinking PC business and it's unclear how it will win in mobile phones and tablets.

Ballmer's successor is not guaranteed success.

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