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Why is Microsoft raising cash? The move to tap the bond markets for $3.75bn – on Monday the company indicated that it will issue five, 10 and 30-year debt for the first time – is not unexpected. When the group was pursuing Yahoo last year, Microsoft raised the prospect of tapping the credit markets to fund the takeover. In the autumn it received an inaugural triple A credit rating, the first US company in more than a decade to join the elite club. Yet it has $23bn of net cash on hand – Microsoft appears to be raising funds simply because it can.
Stockpiling is one of the technology sector’s bad habits. Psychologically, management teams are wary of sending out a signal to investors that there are no more worlds to conquer: only dull, mature companies pay out steady dividends to shareholders. Apple, which appears to have little interest in consolidation or big acquisitions, also sits on a $25bn cash pile. Cisco, whose largest deal to date is the $7bn purchase of Scientific Atlanta in 2005, hoards $23bn.
In part, it may also be because when Microsoft did finally throw some cash shareholders’ way, the benefit was debatable. Since the group began to pay a regular dividend in 2003, and a $32bn special dividend a year later, it has largely used its operating cashflow for capital spending, dividends and share buy-backs. Its shares, though, have moved sideways.
However, as with Microsoft’s present round of redundancies – also the first in its history – the recession has forced Microsoft to start acting like a proper company. Bringing its balance sheet into the 21st century – using a moderate amount of debt to lower its cost of capital – is eminently sensible. And if Microsoft didn’t do so now, when absolute yields are at rock bottom and high-quality corporate borrowers are scarce, when on earth would it?
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