Monday, July 1, 2013
Wall Street Journal: Dell's Cash Overseas Is Needed at Home:
Advisers working on Dell's $24.4 billion buyout are trying to solve a problem: how to use the computer maker's foreign cash without paying a $2.6 billion U.S. tax bill.
That could be the cost levied to use the money held in foreign subsidiaries. As a shareholder vote looms July 18, Dell's cash balances are shrinking as the company's core business falters, heightening the need to have a workable answer in place. The computer maker's cash holdings fell to $13.2 billion, down by $2.1 billion, in the three months to May 3, according to a securities filing.
About half of that cash is committed to funding the buyout led by Chief Executive Michael Dell and private-equity firm Silver Lake Partners. If Dell also has to pay a large repatriation tax bill to Uncle Sam, it will have a much smaller cushion as it tries to adjust to a world in which smartphones and tablets are putting pressure on its PC business.
Teams of accountants, advisers and lawyers are putting in place a plan to use the company's foreign earnings tax-free to fund their deal now, as well as help repay the substantial debt that is being taken on as part of the transaction, a person familiar with the matter said. The solution doesn't affect Dell shareholders; rather, it is a quandary for the buyers.
They are joining the high- stakes game that companies often play with the IRS. U.S. corporations have to pay tax on foreign earnings that are brought back to the parent company. To circumvent that requirement, some companies have crafted tax-avoiding techniques with nicknames such as "the Deadly D" and "the Killer B" that work for a transaction or two before tax authorities shut them down and the hunt for a new loophole begins.
The efforts highlight a current bind of corporate America: While U.S. companies are holding more cash than ever, the tangle of U.S. tax policies and corporate cash-preservation strategies means much of it isn't readily available for some of the most important corporate decisions, such as returning cash to shareholders or mergers and acquisitions.
Apple, for example, bowed this spring to shareholder demands to pay out more of its $145 billion in cash. But rather than bring any cash back from overseas, it chose to sell $17 billion in bonds to fund stock repurchases and dividends.
If companies "can structure a deal where they can bring cash back and avoid even a cash tax charge, that is nirvana," says Richard Harvey, a Villanova University law professor who worked as a tax accountant and formerly advised the IRS. "They either enter into some elaborate tax structure that they hope avoids IRS scrutiny, or they might just decide to borrow in the U.S. and keep the money offshore."
Advisers on the deal believe they have a solution to the tax problem and are working out the details, people familiar with the matter said.