US buys too taxing for Cisco?

$30 billion cash hoard may be spent on overseas acquisitions due to US tax

Where will Cisco acquire next? We're not talking about particular technology markets - we're talking about world geography.

This piece authored by Bloomberg BusinessWeek and reposted on the San Francisco Chronicle site says Cisco and other U.S. tech firms are shopping overseas to avoid U.S. taxes. Cisco has a cash hoard of $30 billion stashed overseas - of $38 billion in total -- that it is reluctant to expose or spend in the U.S. because of the taxes here.

As a result, Cisco and others are expected to make more acquisitions offshore. Cisco CEO John Chambers said as much at a conference in Boston in June, the article states. And it wasn't the first time he has mentioned the unfavorable situation:

Unfortunately the repatriation decision was turned down in the Senate last night. That would have been a great chance to see an additional $600-750 billion brought back to the U.S. and put into the market which is almost the size of the stimulus package, but I understand the decisions on the politics side and we will move on from that.

The eight largest technology companies are sitting on $300 billion in cash, according to the BloombergBusinessweek story. And the US will be the only country in the Organization for Economic Cooperation and Development to double-tax foreign profits once Japan and the UK amend their tax codes this year, the article states.

But Cisco's track record appears to refute the notion that the company will accelerate non-US acquisitions. Of the 87 companies Cisco's acquired in the past 10 years - at a cost of $22.2 billion -- 11 were outside the U.S., the article states. That's less than 13%. And this year alone, Cisco's acquired four companies, all in the US.

We believe Cisco will continue to buy companies based on strategy rather than location or tax advantages. While keeping a keen eyes on the tax implications of any transaction, making the right acquisition instead of the frugal one should pay off more in the long run through increased sales and earnings.

Cisco may be barking more than biting in this case just to try and catalyze some corporate tax reform so it can repatriate some global gain back to the Motherland.

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