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Microsoft is Going Into Debt…Does This Make Any Sense?

Posted on | May 16, 2009 |

I ran across this article from the AP a couple days ago. It states that Microsoft is looking to raise $3.75B in first debt offering.

“Last September, Microsoft’s board authorized it to take on up to $6 billion in debt. Standard & Poor’s Rating Services gave Microsoft an “AAA” corporate credit rating.”

Well, I would hope they have an “AAA” rating - they’ve got over $25 billion in cash!

So does this even make sense? Why pay interest on even $6 billion, when you’ve got 4 times as much in the bank? As you read on in the AP article, it makes even less sense:

“The authorization came just before interest rates soared. Microsoft, which is sitting on more than $25 billion in cash, could afford to wait until rates came down to make a move.”

So, they’re not only going to borrow money and pay interest on it, but they’re going to pay a higher rate than if they wait?

I swear, I’m no MBA grad but this makes no sense to me.

So, I did some digging and found an article from the Seattle Times back in Feb of 2008. This article states that:

“Microsoft will probably sell bonds for the first time to finance its proposed $44.6 billion takeover of Yahoo”

This at least makes sense. If it’s going to cost MS almost twice the amount it has in cash for the acquisition, then taking on debt would be one of the quickest ways to come up with the cash. It may be a bad deal, but at least I could understand the debt. But the MS acquisition of Yahoo! was later dropped and the AP article references the $3.75B figure, so this is back to make no sense to me.

Does this make any sense to you? What am I missing?

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