In June, Microsoft surprised the tech world with the announcement that it was set to buy LinkedIn for $26.2bn.
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Microsoft sold $19.75-billion of bonds on Monday in its largest-ever debt issue.
This is the fifth biggest sale of bonds and is only behind the offerings of Verizon Communications, Anheuser-Busch InBev, Actavis, and Dell Corporation. The software maker will save about $40 million in annual interest payments compared with what it initially offered, Bloomberg reported, citing people familiar with the matter. “Even domestically you have pension funds and insurance companies that can’t get to their yield targets but have to get as close as they can”, said Chuck Burge, portfolio manager with Invesco.
“The Microsoft deal is a large enough supply/demand event in the market that it is uniquely driving yields a little higher”, said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago. But, the investor demand was strongest for 10 and 30 year bonds papers. The filing mentioned, “The net proceeds from the sale of the notes will be used for general corporate purposes, which may include, among other things, acquisitions (including our previously announced acquisition of LinkedIn Corporation), funding for working capital, capital expenditures, repurchases of our capital stock, and repayment of our existing debt”.
Microsoft’s bonds sale was managed by Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. The top three cash holders were Apple, Microsoft, and Google. As long as the company keeps these profits offshore, they will stay tax free-but repatriating the profits to (for example) pay for a domestic acquisition would require the company to pay federal income taxes on this income. “Based on the company’s domestic cash balances and expected capital allocation, Moody’s believes Microsoft may also raise debt to support future dividend and share buybacks such that gross debt could exceed $90 billion in fiscal 2017, up from $35 billion two years ago”.
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Microsoft will extend its earlier job cuts plan to include 2,850 additional positions.
