“In August of 1997, Apple and Microsoft decided to put the past behind them and focus on the future. At that year’s Macworld event, Steve Jobs and Bill Gates announced that the two companies had entered into a historic agreement. In addition to agreeing to a broad patent cross-licensing agreement, Microsoft promised to support Microsoft Office for the Mac for 5 years while Apple agreed to make Internet Explorer the default search engine on the Mac,” Yoni Heisler reports for TUAW. “Microsoft also promised to invest approximately $150 million for shares of Apple non-voting preferred stock.”
“What ever became of Microsoft’s $150 million investment?” Heisler reports. “Microsoft’s $150 million investment netted the company 150,000 shares of preferred stock, convertable to common shares of Apple stock at a price of $8.25, redeemable after a three year period. By 2001, Microsoft had converted all of its shares into common stock, netting the company approximately 18.1 million shares.”
“But by 2003, Microsoft had sold its entire stake in Apple,” Heisler reports. “At the close of trading on Monday, shares of Apple were trading at $604.59. If Microsoft still had their shares, they’d be worth $21.86 billion.”
Read more in the full article here.
MacDailyNews Take: A bit of clarification:
The day before Steve Jobs’ Microsoft announcement, Apple had a market cap of $2.46 billion. Microsoft’s $150 “investment” in non-voting Apple was actually the first payment for the settlement of a lawsuit (Apple v. San Francisco Canyon). The use of the word “investment” was symbolic; a bit of marketing fluff from the master, Steve Jobs.
The “investment” was an initial payment for other “substantial balancing payments” that would be spread out over then next few years, then Apple CFO Fred Anderson said at the time. In fact, the investment was just an initial payment for other “substantial balancing payments” that would be spread out over then next few years, then Apple CFO Fred Anderson said at the time, as reported by David Morgenstern.
The total settlement figure remains undisclosed. It is estimated to have been upwards of $1 billion.
There are new people to educate on this topic everyday.
And for many to be educated takes away one of their favorite inaccurate points to argue. Cuts them off at the knees so denial sets in to be able to continue spreading lies and their own fantasy interpretation.
Since when was Internet Explorer a “search engine”?
… Microsoft’s search engine (known previously as Live Search, Windows Live Search, and MSN Search) was part of the “Internet Explorer” software package. Bing was unveiled in 2009, long after the stock in question was sold.
So. Perhaps a more precise description would be “the search engine contained in IE”. Verbiage. Lawyer (pweyew!) talk.
Setting aside the redundancy below…
The agreement was to make IE the default web browser for Mac OS. This was well before Google hit the Internet. Apple had an arrangement with Excite at the time that their home page would be Apple’s default Home page for IE. Excite had their own working search engine at the time. MSN Search didn’t hit the Internet until 1998, AFTER the agreement with Apple has been settled, and Apple NEVER defaulted to any Microsoft search engine until very recently in iOS 7.
https://en.wikipedia.org/wiki/Web_search_engine
IOW: The author really did make a blunder in this regard.
Whatever not what ever.
Apparantly the without of this article doesn’t know the difference between a Search Engine and a Web Browser.
apparently.
Thanks! 😀
you are most welcome.
Apparantly the author of this article doesn’t know the difference between a Search Engine and a Web Browser.
I though I stopped it in time. 🙂
thought
Tryed, but felled.
The Apple Haters are in total denial over this “investment” thing which in their minds was “saving” Apple and are completely oblivious (and of course in their harmful tech racist position it can’t be so) to the fact Microsoft was paying Apple for infringement and the money wasn’t used or needed to maintain continued Apple operations. Oh they want to fervently believe Apple was begging on it’s knee and using Microsoft’s money to avoid going bankrupt. Disingenuous idiots.
I still even now get the occasional person telling me that Apple belongs to Microsoft….idiots.
Yeah, beyond idiots. Three Stooges Curly kind of morons. Nyuck nyuck nyuckleheads.
It’s hilarious what these haters truly believe and passionately deny. You can paste a signed deceleration of truth from BG on their forehead, have him confess face to face, sign it in blood! Yet these iHating Tools will still find a stupid reason to not believe it.
MDN, the lawsuit over that specific aspect of QuickTime was never filed. It was threatened by Steve to Bill.
It was a case of both Apple and Microsoft using the same third party to write code. The third party used code for which Apple paid and contractually had sole rights to under a works for hire clause in the contract between Apple and that third party group of coders. Microsoft hired the same group to do the same type of work. The third party re-used the Apple owned code for the Microsoft project.
Microsoft found out about it and decided to not get the code re-written. Thus Microsoft became the responsible party — especially once Microsoft started actively using the code.
Apple found out about it, got their hands on all the facts and evidence, and threatened to sue Microsoft.
At the time Steve needed something to prove to the world that Apple was NOT going to die. He convinced Bill that they’d make a big show of Microsoft — at the time THE 800 pound gorilla in the PC world — committing to support Apple for years to come. Microsoft would agree to buy $150 million in non voting stock that they couldn’t sell for a minimum of three years and they committed to Office for Mac for five years. What was not disclosed was how much over the subsequent years Microsoft would pay to Apple to get out of the threatened lawsuit. Also what was not disclosed was that Microsoft made a greater profit per copy of Office for Mac sold than they did for Office for Windows.
Also, there was *NOT* a “broad cross licensing deal”. Yes, some cross licensing of IP was part of the deal. However, the broad cross licensing deals did not come until later — in some cases over a decade later.
Investing in Apple stock was one of the best financial moves Microsoft ever made. By Apple surviving and the investment, Microsoft made their money back many, many times over. The ruse worked and the world believed that Apple was not on the verge of dying. Microsoft also pointed to the investment in regards to its monopoly litigations going on at the time. “We’re such a true, altruistic benefactor to the entire IT world that we’re investing in our direct competitor!”
And for those iHaters who claim that Steve was all about suing competitors rather than negotiating a settlement — this is a perfect example of where, when the competitor was willing to negotiate something reasonable and beneficial to all parties, Steve was very willing to stay away from the courts. It’s just when someone steals something and is not willing to work something out that Steve decided to “go thermonuclear” on them.
“MDN, the lawsuit over that specific aspect of QuickTime was never filed. It was threatened by Steve to Bill.”
Click the link MDN provided – twice. It says exactly what you claim to be schooling them on.
You’re mostly right, but there WAS a broad cross licensing deal between the two. That deal still stands today.
You write the MYTH not the fact! The lawsuit was already in the courts as Microsoft was a party to the Apple v. San Francisco Canyon suit and the judge had expressed the opinion that Microsoft was going to lose. . . In fact the judge had issued a temporary injunction which blocked Microsoft from selling any products that included the code. Microsoft rewrote its OS to exclude the code, and got Windows 3.1 back on the market but it did not work anywhere nearly as well as before. Speed was abysmal. Microsoft NEEDED the code. Other Apple v. Microsoft et.al. suits were still pending. These are facts. You are spinning and dancing.
The three interlocking contracts, agreements—one, setting up the cross licensing in which Apple agrees to dismiss the lawsuit with prejudice, pays Microsoft 0 zero $ for rights in perpetuity to Microsoft’s IP Crown Jewels, while Microsoft PAYS big (undisclosed party’s and judge’s eyes only amounts) $ TO Apple for the limited rights to the QuickTime code they had lifted, plus other IP rights for five years (renewable but for additional negotiable $); another agreement to continue developing and distributing MS Office for Mac while Apple agrees to include MS Explorer for Mac along with Netscape Navigator in new distributions of Macintosh computers and updates of MacOS for those same five years; AND, a final agreement in which Microsoft agrees to buy from Apple Computer Corporation, $150 million in newly authorized, 3 year restricted, NON-VOTING, preferred stock with conversion rights (essentially a piece of fancy paper!) before ANY of the agreements become effective—were unsealed several years ago. They are available online for anyone to read. After the judge’s approval, the lawsuit was dismissed with prejudice so that it could not be brought again against Microsoft.
My education is in this area: my degree is in Economics with a minor in Finance. So let me educate you: a company making a large investment in a weak company DOES NOT do it with NON-VOTING STOCK! Doing so means they have NO SAY in how their investment is used, how the company they’ve invested a huge chunk of money in is governed. No, Shadowself, such an investment would be done in COMMON STOCK, with voting privileges. . . and STRINGS ATTACHED—STRINGS made of steel cable usually, such as representation on the Board of Directors—so they can be assured the errors that got the company into the weak position are not repeated or continued. Shadow, NONE of that happened with this “investment.” Why? Simple. . . It was not voluntary. It was done because Microsoft had to do it. Steve Jobs/Apple was in charge. Everything about these agreements are one way. . . with Apple in the catbird seat. Apple won, but Steve Jobs spun it into appearing to be a win-win.
Apple had two quarters of operating in the black under its belt at the time of this so-called “investment,” $1.4 Billion in CASH and liquid assets aside from inventory AFTER buying NexT for $405 MILLION. Although they were not in the best shape, Apple was not circling the drain.
Roughly Drafted reported in March of 2007:
“Mac Office, $150 Million, and the story nobody covered
. . . There Is One More Thing
“What wasn’t widely reported about the July 1997 agreement was the subtle mention of other payments Microsoft agreed to make in addition to investing a paltry $150 million in stock. That amount was never publicly disclosed, but Apple’s financial records suggest it was substantial.”
“Despite losing $850 million the year before, over a billion dollars in 1997–of which around 600 million was related to buying NeXT, and suffering a billion dollar drop in revenues between 1997-1998, Apple mysteriously managed to maintain its investments and actually accumulated cash.”
“It wasn’t until 1998 that Apple began selling off its shares in ARM, and those sales took place over several years. Prior to that, how did Apple manage to spend nearly two billion dollars more than it earned across two years, lose 14% of its income, and still manage to sit on the same $1.2 billion in cash without pawning anything?”
“In 1999, David Every wrote in an article on Mackido that Microsoft was rumored to have paid Apple between $500 million and $2 billion over several years as part of the deal.”
RoughlyDrafted—March 11, 2007
We are actually mostly in agreement. Just a few minor quibbles. I wrote “you write myth” when I meant “they write myth. Sorry.
The $150 million wasn’t a payment at all. Buying stock is never considered a payment because the company isn’t actually getting that money. It’s stock. This deal was simply for publicity, to show the world that Microsoft was supporting Apple, nothing more. Microsoft sold their stock a bit before I bought mine. Too bad for them. If they held for just another half year, or so, it would have more than doubled.
Actually, Apple DID get that money as the stock purchased was newly authorized, newly issued non-voting preferred stock. In essence, Apple printed a piece of paper that said:
100,000,000 preferred shares, non-voting, par value $15 (Apple common Stock was at ~$13 in July 1997) —Issue date, July 31, 1997. Convertable on demand after July 31, 2000 to common shares—RESTRICTED—not transferable or salable before July 31, 2000—Apple Computer, incorporated. 1 Infinite Loop, Cupertino, Ca,
Microsoft cut a cashiers check for $150 million, or transferred the $150 million from Microsoft’s bank to Apple’s bank, and Apple transferred the registered stock certificate to Microsoft by courier.
The article claims 150,000 shares but the numbers, like most of his numbers in the article don’t work out. I adjusted my hypothetical stock certificate for numbers that WOULD work given the known historical facts, assuming the split on June 5, 2000, and allowing for Microsoft to have used some of the Apple preferred shares in employees’ bonuses (which would have been converted privately) to account for the odd number of total shares converted to common stock as there’s no reason NOT to convert the entire holding.
Let’s not forget there was a 2:1 stock split in February 2005, so I think the amounts above would be double.
I agree. I calculated it out. The author assumed that the stock split that occurred during the time Microsoft held the preferred stock would not be applied. He’s wrong. That’d be stock fraud on the holders of any stock warrants or other such instruments. They are adjusted in terms of any common share splits that occur during their effective period. The actual number would have been 72.4 million shares with a value that would have been $43,772,316,000 on an outlay of $150 million . . . or a return of ~ 291.6%!—Swordmaker
I find ALL his numbers suspect. Using 150,000 shares, the preferred stock would have been $1000 a share., while the common stock was selling for just over $13. That makes no sense in a convertible stock!
He shows he has no clue about finance. It also makes no sense in light of his other numbers.
My analysis is that the original amount was 10,000,000 shares. Bill Gates took 825,000 shares as his cut of the negotiation and his attorneys got 82,500 shares leaving 9,092,500 shares in Microsoft’s hands. . . The convert to 18,185,000 common shares after the two for one split. Rounded, the author’s and Microsoft’s reported 18.1 million shares.
Pay a fine for a lawsuit, make a profit.
I wish my traffic fines made a profit for me. 😉
THANK YOU MDN! You provided the very best set of references, leading to even better references, I’ve ever seen posted around here regarding ‘the day Microsoft saved Apple’ nonsense.
Encouragement: Anyone interested in the gory details of exactly what happened, follow the links MDN provided, then follow the links THOSE articles provide. It’s a marvelous collection of documents. You’ll even find you’re lead to a great article by our pal Daniel Dilger.
10 grins!
😀 😀 😀 😀 😀 😀 😀 😀 😀 😀
And if it weren’t for that agreement, Microsoft might not be waning today and Apple might not exist, let alone be top dog.
But Billy Boy needed the deal just as much, with antitrust regulators breathing down his neck.
Yeah, I believe it was the Roughly Drafted blog many years ago that proved that Microsoft secretly paid Apple $1 Billion in cash at that time to avoid the QuickTime lawsuit. Suddenly Apple reported $1B in new cash that wasn’t explained. Anyhow, Microsoft benefitted greatly from an Apple that was still around to copy more from.