Microsoft Corp. (Nasdaq: MSFT) announced the pricing of its $19.75 billion debt offering on Aug. 1. Microsoft intends to use the new debt to finance its previously announced acquisition of LinkedIn Corp. (NYSE: LNKD) for $26.2 billion.
Microsoft had $113 billion cash and liquid investments as of 2015 year-end, but they are mostly held offshore. The company won’t bring the cash home to fund the LinkedIn acquisition because it would generate a huge tax bill.
U.S. non-financial companies held $1.84 trillion in cash and liquid investments at the end of 2015, according to Standard & Poor’s. The top three cash holders were Apple, Microsoft, and Google. Like Microsoft, most U.S. multinational companies held a majority of their cash overseas.
Offshore profits that an American company repatriates are subject to 35 percent U.S. tax rate minus a tax credit equal to whatever taxes the company pays to foreign governments.
This double taxation creates a strong incentive for U.S. companies to leave cash in their foreign subsidiaries.
Fitch placed Microsoft’s long-term ratings on negative watch following the announcement of the LinkedIn acquisition. It’s the result of Microsoft’s rising debt to fund acquisitions and shareholder buybacks, given the majority of the company’s cash cannot be brought home.
The debt offerings are expected to close on Aug. 8, the company stated in its press release.
Microsoft announced it would acquire LinkedIn for $26.2 billion in an all-cash deal on Jun. 13. Microsoft agreed to pay $196 per LinkedIn share, a 50 percent premium to LinkedIn’s closing price on June 10.
The transaction was unanimously approved by the boards of directors of both LinkedIn and Microsoft. The deal is subject to approval by LinkedIn’s shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions, stated Microsoft.
The company expects to complete the acquisition by the end of calendar-year 2016.