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Microsoft Corporation Raises $19.75Bn to Fund LinkedIn Acquisition

New Microsoft (MSFT) Study Reveals That Parents Are Going Overboard with Online Sharing

Microsoft Corporation has raised $19.75 billion through a senior unsecured notes offering, which is the third-largest U.S. corporate bond sale of the year. The company plans to use the money to fund its acquisition of LinkedIn Corp . This is the fifth biggest bond deal ever, according to S&P Global Ratings. Demand was high for the bonds, helping the company to borrow at lower rates than expected. The software maker will save about $40 million in annual interest payments compared with what it initially offered, Bloomberg reported, citing people familiar with the matter.

Microsoft Corporation (MSFT)

Microsoft Bonds Offering

The offering consists of: $2.50 billion of 1.100% notes due Aug. 8, 2019; $2.75 billion of 1.550% notes due Aug. 8, 2021; $1.50 billion of 2.000% notes due Aug. 8, 2023; $4.00 billion of 2.400% notes due Aug. 8, 2026; $2.25 billion of 3.450% notes due Aug. 8, 2036; $4.50 billion of 3.700% notes due Aug. 8, 2046; and $2.25 billion of 3.950% notes due Aug. 8, 2056.

In June, Microsoft Corporation announced that it agreed to acquire LinkedIn for $26.2 billion or $196 per share in cash. The company said that it would fund the deal primarily through issuing new debt. The deal is expected to close by the end of this year. Proceeds from the offering may also be used for general corporate purposes including working capital, debt repayments, and share buybacks, the company said in a statement.

The bonds offering is marked as the third biggest of the year. Early this year, Anheuser-Busch InBev NV raised $46 billion in bonds offering, followed by Dell’s $20 billion deal in May.

Companies holding cash overseas would have to pay a 35% tax to bring the money back to the U.S. Therefore, the bonds sale seems to be the option that they use to get the capital and fund such acquisitions. In June, Apple issued a 30-year U.S. dollar bond in Taiwan to raise about $1.2 billion. The bonds carried a yield of 4.15%, Reuters reported, citing people familiar with the issuance.

Microsoft’s bonds sale was managed by Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.

Bond Ratings

The bonds received ratings from CreditSights, S&P Global Ratings and Moody’s. Jordan Chalfin, analyst at CreditSights, upgraded the bonds to Outperform, calling them “an attractive entry point into this high quality credit,” Barrons reported.

S&P Global Ratings assigned the bonds the top AAA grade. The bonds were given top grade by Moody’s, which kept its triple-A rating on Microsoft. However, the rating agency issued a negative outlook, with analysts expecting an increase in debt levels:

“Moody’s expects Microsoft will fund the pending acquisition of LinkedIn entirely with debt, which will lead to Microsoft’s gross adjusted debt to EBITDA above 2x. Based on the company’s domestic cash balances and expected capital allocation, Moody’s believes Microsoft may also raise debt to support future dividend and share buybacks such that gross debt could exceed $90 billion in fiscal 2017, up from $35 billion two years ago.”

In other news, Microsoft disclosed in a filing that it will 2,850 more jobs during its fiscal 2017, which started July 1. These jobs losses are In addition to 1,850 positions that would be eliminated this year.

Shares of Microsoft Corporation have gained 21.16% during the past 12 months.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.