The Day Microsoft Saved Apple

Steve Jobs and Bill Gates in 2007

Well, perhaps that is a bit over-dramatic, but is easy to forget given Apple’s current success, how fragile it was back in August 1997 when Steve Jobs and Bill Gates appeared together at the Macworld Expo to announce Microsoft had invested $150 million in Apple to help shore up Apple’s finances. In return, Microsoft received strategic weapons vis a vis Java, reinforced the position of its Office product and Internet Explorer on Macs, and gained some ammunition in its fight against Federal anti-Trust actions.

It wasn’t until 1998 that Apple released the iMac and began its long slog from the brink to its present success. It is a sign of how close Apple was to the edge that a mere $150 million investment would be so vital to Apple.

iMac 1998

A sign of how different things are for Apple now compared to 1997 is its stock price which was around $5.40 per share (adjusting for stock splits and dividends) in August 1997 and in October 2011 trades at about $390.

Here’s a video of Steve Jobs and Bill Gates at that conference. Note the boos as Steve Jobs mentions Microsoft and Gates.

http://youtu.be/PEHNrqPkefI

In Apple’s 2003 10-K filing with the SEC, the company revealed that Microsoft’s $150 million investment bought the company 150,000 shares of Series A nonvoting convertible preferred stock at $1,000 per share. Microsoft had the option after August 5, 2000 to convert those preferred shares, for $8.25 per share, into common stock. In 2000, Microsoft converted a little under half its shares into 9 million shares of common stock. It then converted the remainder in 2001 into another 9.2 million shares.

All told, Microsoft spent a little over $151 million to acquire 18.2 million shares of Apple stock, for roughly $8.31 per share. Microsoft confirmed that it sold all of its AAPL holdings some time ago, and likely did so at a healthy profit—after all, AAPL has traded significantly higher than $8 for many years.