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Microsoft co-founder Paul Allen says Bill Gates plotted to dilute his stake

In a forthcoming memoir excerpted in Vanity Fair magazine, Allen says that before he left Microsoft in 1983, Gates also tried to buy his shares from him at a bargain price.

March 30, 2011|By Nathan Olivarez-Giles, Los Angeles Times
  • Microsoft co-founders Bill Gates, left, and Paul Allen at the computer software companys Bellevue, Wash., offices in 1981.
Microsoft co-founders Bill Gates, left, and Paul Allen at the computer… (Jim Hallas, Associated…)

Microsoft Corp. co-founder Paul Allen says Bill Gates, his onetime business partner, was a "mercenary" opportunist who schemed to lessen Allen's stake in the software company.

Allen, now a venture capitalist in Seattle, says in his book "Idea Man: A Memoir by the Cofounder of Microsoft" that he learned of the plot while listening in on a conversation between Gates and Steve Ballmer in 1982, after he had been diagnosed with Hodgkin's disease. Gates is currently Microsoft chairman and Ballmer is chief executive. Allen left Microsoft in 1983.

Vanity Fair magazine on Wednesday published an excerpt of the upcoming memoir, which goes on sale April 19.

"I heard Bill and Steve speaking heatedly in Bill's office and paused outside to listen in," Allen wrote in the excerpt. "It was easy to get the gist of the conversation. They were bemoaning my recent lack of production and discussing how they might dilute my Microsoft equity by issuing options to themselves and other shareholders."

Allen said it was clear Gates and Ballmer had been weighing the issue for a long time.

"Unable to stand it any longer, I burst in on them and shouted, 'This is unbelievable! It shows your true character, once and for all,' " Allen wrote. "I was speaking to both of them, but staring straight at Bill. Caught red-handed, they were struck dumb. Before they could respond, I turned on my heel and left."

Allen wrote that he went over their conversation in his mind while driving home that night, only feeling more troubled by it all.

"I helped start the company and was still an active member of management, though limited by my illness, and now my partner and my colleague were scheming to rip me off," he wrote. "It was mercenary opportunism, plain and simple."

That same night, Allen said, Ballmer called and asked to come over.

" 'Look, Paul,' he said after we sat down together, 'I'm really sorry about what happened today. We were just letting off steam,' " Allen wrote. "'We're trying to get so much stuff done, and we just wish you could contribute even more. But that stock thing isn't fair. I wouldn't have anything to do with it, and I'm sure Bill wouldn't either.' "

Allen wrote that he later told Gates the incident "had left a bad taste in my mouth."

Days later, Allen said, Gates gave him a six-page, handwritten letter of apology.

The letter, Allen wrote, "offered a revealing, Bill's-eye view of our partnership: 'During the last 14 years we have had numerous disagreements. However, I doubt any two partners have ever agreed on as much both in terms of specific decisions and their general idea of how to view things.' "

In the excerpt, Allen says Gates was right.

"Our great string of successes had married my vision to his unmatched aptitude for business," Allen wrote. "But that was beside the point.… Bill's letter was a last-ditch effort to get me to stay, and I knew he believed he had logic on his side. But it didn't change anything. My mind was made up."

Gates later made an offer to buy Allen's stake in Microsoft at $5 a share, but Allen refused to sell, the excerpt said.

"As it turned out, Bill's conservatism worked to my advantage," Allen wrote. "If he'd been willing to offer something close to my asking price, I would have sold way too soon."

Allen resigned from Microsoft on Feb. 18, 1983, but retained his seat on the board of directors as a company founder. Microsoft declined to comment. Gates did not return calls requesting comment.

nathan.olivarezgiles@latimes.com

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