Blog Coverage Microsoft Goes the Bond Way to Buy LinkedIn

LONDON, UK / ACCESSWIRE / August 3, 2016 / Active Wall St. blog coverage looks at the headline from Microsoft Corp. (NASDAQ: MSFT) as the company announced sale of corporate bonds to the tune of $19.75 billion on Monday, August 01, 2016. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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The funds raised through bond sale will primarily be used by Microsoft to pay for acquisition of LinkedIn. However, the company has indicated that it could channel the proceeds for other corporate use such as working capital, debt repayments, and share buybacks, etc.

In June 2016, Microsoft had declared its plan to acquire LinkedIn (NYSE: LNKD) for $ 26.2 billion in an all cash deal at $196 per share. As part of the deal, Jeff Weiner will continue as CEO of LinkedIn and will report to Microsoft CEO, Satya Nadella. LinkedIn will also retain its individual brand, culture and independence.

Details of the Bond sale

Sources familiar with the deal revealed that Microsoft has issued fixed-rate notes with seven maturities between three to forty years. Investors were clamouring to get a slice of the lucrative pie and orders placed exceeded $50 billion, with the highest demand for the 10 year and 30 year notes. The 10 year notes would yield 2.42 % and the 30 year notes yield 3.73 % as interest. Though the bond sale would increase Microsoft’s debt burden both S&P and Moody’s Corp. (NYSE: MCO) gave it a triple A rating.

According to Moody’s, acquisition of LinkedIn entirely with debt will lead to Microsoft’s gross adjusted debt to EBITDA above 2x. 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.

Opportune Timing & Tax Benefits

The bond sale comes at an opportune time for Microsoft as investor sentiments have shifted favourably thereby increasing demand for debt sale. In fact, Microsoft current bond sale is at a lower cost than the bond sale which happened in October 2015 for $13 billion.

Many people may wonder as to why a corporate giant like Microsoft needs to issue debt instruments. Companies have to pay tax of 35% on all cash holdings from overseas profits when they are repatriated to the US. It becomes practical for companies like Microsoft to borrow for acquisitions than incur huge tax liabilities.

Microsoft’s bond sale becomes the third largest corporate bond sale for the current year in the US. Earlier in January 2016 Anheuser-Busch InBev’s had issued $46 billion in bonds followed by Dell which had issued bonds worth 20 billion in May 2016. More recently, on July 28, 2016, Apple had sold bonds worth $7 billion.

The bond market in the US has seen tremendous global investors interest as yields from global central banks in Japan and Europe have turned negative. Availability of strong triple-A rated corporate bonds skews the demand amongst investors. The US high grade corporate bond sale would flirt with the $500 billion mark post Microsoft’s announcement.

Microsoft’s bond sale was underwritten by Bank of America Merrill Lynch, JPMorgan and Wells Fargo.

Stock Performance

Following news of the bond sale, shares of Microsoft remained unchanged closing Tuesday’s trading session at $ 56.58 with a total volume of 35.03 million shares. The company’s share has surged 24.23% in the past one year.

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