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Tuesday’s headline from the WSJ reads: “Microsoft Corp. (MSFT) to offer up to $1.25 billion in 3-year convertible notes.”

The software company will use the sales proceeds to repay short-term debt. If it was any other company I’d ignore this headline as simple daily noise as this kind of thing happens all the time. But Microsoft has $39 billion of cash and generates $16-$17 billion of free cash flow a year. Issuing short-term debt, for which Microsoft will surely pay higher interest than it receives on its pile of cash makes absolutely no economic sense – zero.

Microsoft has $1 billion and $0.75 billion of debt that matures in 2019 and 2039, respectively. Ironically, though this debt comes with higher interest. It makes sense if the company believes that we’ll have significant inflation and it will be paying off its debt with inflated dollars.

When you are sitting on a pile of cash that earns nothing, borrowing short-term (three years is short-term) makes no economic sense. It seems the Microsoft finance department suffers from the same problem many investors do- it cannot sit on its hands, it has to do something even if it is a losing proposition for the company and shareholders.

Source: Microsoft Debt Issuance Makes Zero Economic Sense