After hours Thursday, Microsoft (NASDAQ:MSFT) gained 5.5% on announced strong bookings, raised earnings guidance for the coming year, and a massive share buyback tender offer. This article explores the relative contribution of each factor to Microsoft’s valuation.

To start with, the tender offer was described on the conference call as follows:

This first component of today’s buyback announcement is a $20 billion tender offer, that assuming is fully completed inside the tender range, will reduce our standing share count by approximately 8%. The period for people to tender the shares will begin tomorrow July 21 and the shares you’ve talked about on are about August 17 of this year. The tender offer is priced between $22.50 and $24.75 per share. Our executive officers and directors have advised that they will be not tendering any shares.

Secondly, earnings per share guidance was raised to $1.43-$1.47 compared with analyst estimates of $1.40. This is a 3.5% increase and by itself should allow for a similar gain in the share price assuming the P/E multiple should stay the same.

Another way to look at things is to use the theoretical formula for the justifiable P/E (assuming the current P/E is its current justifiable P/E) and adjusting it to reflect the company pro-forma for the tender offer.

The new justifiable P/E on next year’s earnings of $1.45 gives a share price of $26.67, which is well above the high end of the tender range as well as the after-hours trading price. That calculation might allow for continued share appreciation after the buyback.

All that said, some would argue that the share buyback should have no impact on Microsoft’s value as a company. In other words, its enterprise value should be unchanged by the transaction (excluding any actual transaction costs, which would reduce enterprise value.) As of Thursday’s close Microsoft’s statistics were as follows:

Following the buyback, the company will have $20 billion less cash and can therefore only support a market value that is $20 billion lower ($213.10).

Which is a fancy way of saying, the way to keep things equal is to keep them equal - the math only works if the shares are tendered at yesterday’s close.