Acquisitions and Tax implications for Overseas Cash

Acquisitions are always interesting and the article below helps to take into account tax implications for companies with large amounts of cash and what happens upon repatriation. It is an excellent description of how to value stocks. Many times it is hard to find out cash position information. Of course you need to know the amounts involved in different countries, as there may be tax effects in those countries to take into account also.

In the past, Brazil, for example, did not allow the money to be repatriated and so companies were stuck with money in the foreign country. Then they had to either invest in the current company, invest in other companies within the country, or wait until the government policies changed.

The article below has been included in it's entirety, as it is too interesting not to be able to read it. Good reading!

Tech Firms Find It's Not Easy Holding Green

By ROLFE WINKLER

If you buy a $1 million house and find $200,000 in the basement when you move in, how much did you really pay for it? That, in a nutshell, is the question facing shareholders in Apple and other mega-cap tech companies.

WSJ's Rolfe Winkler makes a stop on Mean Street to explain the challenges in determining the valuation of companies that hold large cash reserves. AP Photo.

Buying a share of Apple stock for $385, Friday's close, an investor finds it has $87 per share of cash on its balance sheet. Google, Cisco Systems and Microsoft are other tech titans with gargantuan cash piles on their balance sheets. So what's the right way to think about how much investors are paying to own a piece of these companies?

The cash lying on Apple's balance sheet is, in theory, just a bonus shareholders get when they buy the stock. With interest rates near zero, cash adds nearly nothing to earnings. So when measuring a company's valuation, many will simply "back out the cash" to understand a company's value relative to the earnings it generates. In Apple's case, analysts estimate it will earn $34.43 a share in the fiscal year ending next September. Today's price per share is 11 times earnings. If you exclude cash per share, the multiple is just 8.6 times earnings.

 

But it isn't so simple, for Apple or any of the other tech companies noted above. For starters, most of Big Tech's cash is held overseas. In its last financial filing, Apple said two-thirds of its cash is abroad. For Google, it's nearly 50%, and, for Cisco and Microsoft, about 90%. Companies can't return cash to shareholders before they repatriate it. And that incurs a 35% tax liability. So even if investors are to take cash piles at face value, they need to discount the portion held abroad by the tax rate.
Bondholders also have a claim on the company's cash, of course. While Apple has no debt, Cisco, Microsoft and Google do. So, for instance, investors eyeing Cisco's $44.4 billion cash pile should note the company has $16.9 billion of debt, too.

Another reason to discount cash: Companies can waste it on ill-considered acquisitions. Google's proposed $12.5 billion price tag for Motorola Mobility Holdings seems expensive, as does Hewlett-Packard's $10 billion deal for software-maker Autonomy. When those deals were announced, the market capitalizations of Google and H-P each fell more than the cost of their respective acquisitions. It's as if shareholders not only ascribed zero value for the acquired companies but penalized Google and H-P for their lack of discipline.
After its pricey $8.6 billion purchase of Web-telephony company Skype, which makes little money, Microsoft also seems a candidate to have its cash pile discounted.

Apple, meanwhile, has been content to just let its cash accumulate. That could finally change: Apple's new chief executive, Tim Cook, has said he's "not religious about holding cash." So perhaps a dividend is in Apple's future, giving some confidence Apple will act responsibly.

But perhaps the best rule of thumb when analyzing the true value of corporate cash piles: guilty until proven innocent.

Tech Firms Find It's Not Easy Holding Green

Evolution of Social Business Networks toward specialized markets and verticals. A threat to LinkedIn?

This is a very interesting article on business social media. I have copied it here for your review and information. The link to the original article is found at the end of the article.

Essentially, there is an evolution to more specific Business Social Networks versus more general Networks like LinkedIn. This is beginning to allow for more specialized content and information for a vertical network, and since LinkedIn doesn't have a good platform but does have an extensive resume database, it is vulnerable on the mid to long term basis. Essentially it still has time to react, but competition will be building.

Mentioned verticals are Academic and Investor based.

Hope that you find this interesting, as we watch the emergence of this fascinating segment of the marketing methodology. Enjoy the read!

The Verticalization Of Professional Networks Begins: Is It A Threat To LinkedIn?

Pascal-Emmanuel Gobry | Nov. 3, 2011, 6:12 AM | 5,878 | 4

This note is from BI Research, a new tech-industry intelligence service. The service is currently in beta and free.

LinkedIn hiring solutions revenue Image: Business Insider Research LNKDNov 03 11:00 PM 87.50 Change 3.00 % Change 3.55%

More and more, we are seeing the emergence of "vertical" professional social networks: networks dedicated to a specific type of occupation with specialized tools.  Here are two examples:

• Academic networks. These networks help researchers and scientists get together to share data and information, and help companies tap networks of researchers to solve problems. One such network, Kaggle, recently added Silicon Valley and technology heavyweight Max Levchin as chairman. Another example is Paris-based Hypios.
• Investor networks. These networks help investors conduct private financial transactions like M&A and asset sales. An example of a contender here is CapLinked, but also investors that connect entrepreneurs and investors like AngelList. 

Are these a threat to LinkedIn, the biggest, and more generalist, professional social network?
As we argued in our study of network effects, generalist networks can be undermined by more focused vertical upstarts. Is this going to happen to LinkedIn?
In the short-to-medium term: no. From a market opportunity standpoint, LinkedIn is a giant resume database, which gives it a unique asset to attack the multibillion dollar global recruiting industry, which it is already doing as the chart above shows. That is an enormous opportunity, and whether these networks succeed or fail won't make a difference to LinkedIn's execution in this market.
That being said, it is a big missed opportunity, because it shows that LinkedIn can't become a platform. Facebook's greatest insight, and what guarantees its dominance of the web over the next 5 years, was its crucial early realization that it couldn't do everything "social"--but that it could provide tools to third parties to do it through their social graph, thereby improving the value of their company (and allowing them to take a tax later on).
Building platforms seems to be a "DNA thing." It's a core competency, and companies either can or can't do it. And LinkedIn, so far, has been in the latter category. It has certainly tried to become a platform by allowing third-parties to build apps on top of LinkedIn and providing tools like an equivalent of Facebook's Connect feature, which allows user to log in to third-party sites with their Facebook credentials. But so far the applications are very limited. And several third-party LinkedIn developers have told us, on condition of anonymity because they are partners with LinkedIn, that LinkedIn's third-party tools are limited and technically frustrating.
LinkedIn is often referred to as a "professional" or "grown-up" Facebook, but that misses a crucial difference. Like Facebook, LinkedIn is a social network; unlike Facebook, LinkedIn is not a platform. This is a missed opportunity, and even though it shouldn't affect LinkedIn in the short-to-medium term, it remains a long-term weakness because in the future vertical professional networks just might undermine LinkedIn.
Therefore, even though LinkedIn has a big opportunity ahead of it that it is uniquely positioned to grasp, its incapacity to turn itself into a platform puts a lid on its potential future value.

Link to the original article:
http://www.businessinsider.com/the-verticalization-of-professional-networks-begins-is-it-a-threat-to-linkedin-2011-11

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