Microsoft mulls record special dividend

Microsoft, the computer software giant, is considering paying out a special dividend to shareholders in response to increasing investor pressure.

The special dividend would be more than $10bn (£6bn), the biggest corporate pay-out ever, the Financial Times reported.

Unlike traditional companies, technology companies such as Microsoft often do not pay dividends to shareholders on the grounds that they benefit from high stock prices.

But that argument has lost credibility with the bursting of the hi-tech bubble and investors have been putting pressure on Microsoft, whose share prices have come down from stratospheric levels during the 1990s boom, to release some of its enormous cash reserves.

Microsoft, which generates about $3bn (£2.1bn) in cash every quarter, has accumulated a cash pile of $46bn (£26bn). The company began paying a dividend earlier this year.

Microsoft had in the past justified its no-dividends policy on the grounds that it needed large cash reserves to cover potential legal risks from lawsuits. The company last year settled a landmark anti-trust action from the US government.

But in a report published yesterday, their first review of the settlement, the federal government and states accused Microsoft of failing to comply with a key element of the agreement. Failure to adhere to the settlement could trigger a court order against the company, the group said.

Microsoft competitors such as Sun Microsystems have complained that the software giant's licensing terms remain onerous despite promises to make them simpler and cheaper.

Under the terms of the settlement, Microsoft agreed to offer its competitors "reasonable and non-discriminatory" terms of access to its proprietary protocols to enable them to build software more compatible with the Windows operating system. Microsoft controls 90% of the market in operating systems.