Minority Interest
Categories: Investing, Company Management
It was a business partnership. Microsoft had a team of executives who thought their old ways of shipping software on a CD (digital storage device from the Stone Age) were dying, and made the company unfit to compete in the much faster moving, always listening "modern" internet era of 1998.
The execs were valued and respected by Bill and Steve, and they didn't want to fully lose touch with them. So MSFT wrote a check for the first $10 million invested in what became a powerful classified advertising company, kinda like Glassdoor and Indeed combined. Kinda. Only more local, with city focus. Details not important.
What is important in thinking about "minority interest" is that, after several rounds of funding and then an IPO, MSFT owned 22% of the newly public company. They had a minority interest in it. Had they owned 51% then...yeah. But they didn't. And here's where accounting things get tricky. That company had, say, $100 million in losses. In one means of accounting, MSFT would have to have recognized $22 million in "pro rate losses," kinda in sympathy for the losses of that company. But since it acted as a fully independent, fully funded company, MSFT could just hold the value of its investment in the company as a non-operating one. That is, its 22% stake in the company was worth, say, $220 million...and it could then hold that amount as an asset. A current one, because it could sell those shares within one year, if it wanted to do so, on its balance sheet.