Why Microsoft, with $100 billion, wants a loan for LinkedIn acquisition

Why Microsoft, with $100 billion, wants a loan for LinkedIn acquisition

Microsoft Corp has enough cash to buy LinkedIn Corp four times over. So why is it taking out a big loan to pay for its latest purchase?
Maybe because it'll lower the technology giant's tax bill.
Microsoft will avoid having to pay a 35 per cent tax rate to repatriate cash from overseas accounts. While it's true that Microsoft has more than $100 billion in cash and cash equivalents, most of it is parked offshore. Bringing home any of it to fund the proposed $26.2 billion purchase, announced on Monday, would generate a tax bill.
That's not the only benefit of borrowing. The company could also deduct interest payments, thus lowering its future US tax bill. So by financing the bulk of its purchase with debt, Microsoft could legally sidestep roughly $9 billion in US taxes this year, and save millions more in the years to come by using interest deductions to reduce its taxable income.
"It's an odd world where a company is awash in cash and chooses to make the acquisition with debts because they don't want to pay tax," said Robert McIntyre, executive director of Citizens for Tax Justice..
The company plans to finance the acquisition "primarily with new debt," Microsoft's chief financial officer, Amy Hood, said during a conference call on Monday announcing the deal, without specifying an exact amount it expects to borrow. A Microsoft spokesman didn't immediately respond to a request for comment.
Companies are always deciding how to finance themselves and prefer debt when rates are exceedingly low, as they are now. With its latest plan, Microsoft joins a procession of cash-rich US companies that have in recent years relied on leverage to sidestep US taxes. In 2015, Apple, with more than $180 billion overseas, borrowed $6.5 billion to pay shareholders a dividend.
Many chief executive officers and business analysts say the strategy amounts to both good corporate governance and common sense. Apple CEO Tim Cook famously said last year that it was "crap" to criticize his company for borrowing at low rates to avoid paying 40 per cent in combined federal and local taxes.
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