Microsoft Corp. (NASDAQ: MSFT) managed to raise $19.75 billion through bond sale in order to help finance the tech company’s planned acquisition of LinkedIn Corp.
This is so far the biggest sale of Microsoft ever, and market players put in over $50 billion in orders for the deal. The robust demand aided the software corporation to borrow at lower rates than it paid for the bonds amounting $13 billion, which it raised during the month of October. Additionally, reliable sources noted that the company was able to save approximately $40 million in annual interest payments in comparison with what it was initially offering to pay.
During the recent months, yields are turning into negative territory on an increasing number of bonds internationally as the European and Japanese central banks boost their stimulus programs, thereby encouraging money managers to look for higher returns in the United States.
According to Ameriprise Financial Inc. senior corporate bond analyst Mr. Jon Cartwright, ”You have the entire world looking for a place to put money, and when you compare Microsoft to negative yields, the tech company looks awfully attractive.”
Yesterday was the busiest for corporate bond sales in the United States since May 17, and the 5th busiest of 2016. Over $23 billion were expected to be issued as of the early afternoon in New York.
NN Investment Partners portfolio manager Dorian Garay said, “What we’ve seen in the past few weeks is an indication of what we could continue to see in the coming weeks or even months.”
During the month of June, the software giant revealed that it is planning to purchase LinkedIn. The mentioned acquisition deal is valued at $26.2 billion, and Microsoft stated that it would finance it primarily by means of issuing new debt. Furthermore, the company also said that it estimates that the deal will be closed by the end of 2016.
The tech corporation said in a filing that proceeds from its bond sale may also be utilized for general corporate purposes, such as debt repayments, working capital, as well as share buybacks.
JPMorgan Chase Co., Bank of America Corp., and Wells Fargo & Co. managed Microsoft’s bond sale.
The bond sale of the software giant is the third largest of 2016, behind the $46 billion offering of Anheuser-Busch InBev in the month of January, and the $20 billion offering of Dell Inc. during the month of May.
The debt issuance of the software corporation is linked to avoiding a boost in its tax bill. Corporations which have cash holdings from profits abroad have to give a 35 percent tax payment to repatriate those to the United States. Instead of utilizing that cash for the funding of acquisitions and pay the massive tax rates that result from the deal, it is much cheaper for huge companies to borrow the funds.
As of the time of writing, the MSFT stock is changing hands at $56.58, down by 0.18 percent or 0.10 points.