Weekly Update #235: Tax Reform and Tech M&A
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Apple was the first large tech company to respond to the “Tax Cuts and Jobs Act of 2017”, announcing last week that it would incur $38B of repatriation tax payments to bring some of its foreign cash hoard home. The new tax bill, which was passed late last year, provides for a one-time reduction in the repatriation tax rate to 15.5% (for cash) from 40% previously. Based on the reduced rate, we estimate roughly $245B of Apple’s cash is set to return stateside.
Key questions now are -- will other tech companies follow suit and could this cash loosen tech M&A spigots? We noted in a prior weekly update that tax considerations were likely a contributing factor to slower M&A activity domestically, as many tech giant were choosing to keep large portions of their cash stores abroad. Aside from Apple, other companies with significant foreign cash holdings include Cisco, Microsoft, Oracle, Qualcomm and Alphabet.
S&P 500 Companies With Large Foreign Cash Stockpiles
Of course, companies could choose to deploy the newly returned cash elsewhere -- R&D, higher dividends and buybacks are other possible avenues. A Congressional Research Services study suggests that in the last repatriation holiday, ~91% of repatriated capital was used for share buybacks.
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