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Why is Google issuing bonds?

Google is loaded o the gills with cash, yet today they are pricing up a bond issue. he Financial Times is reporting that Google will raise as much as $3 billion of 3, 5 and 10-year money. Here’s my question: why do this?

  • Acquisition: Maybe they are pulling a Microsoft and preparing a debt-financed acquisition. Microsoft’s Skype deal was financed by Microsoft’s foray into the debt markets – and Microsoft needs the debt financing no more than Google. The FT article says as much.
  • It’s free money. Why not: As I have been banging on about, real yields are extremely low these days. Why shouldn’t companies raise as much debt financing as possible? It lowers their overall cost of capital irrespective of whether they do acquisitions.

But Google has a shed load of cash on its balance sheet. It certainly doesn’t need $3 billion more. They are up to something – and it won’t be long before we find out.

Source: Google in $3bn debut bond sale

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. DavidLazarusUK says:

     The free money theory is probably the right one. If they can borrow billions at todays long term low rates it will lower their cost of funds for the duration of the bonds. My concern is for the investors who get locked into the low rates. Interest rates can only go up so why lock into such low rates?

  2. Anonymous says:

     The free money theory is probably the right one. If they can borrow billions at todays long term low rates it will lower their cost of funds for the duration of the bonds. My concern is for the investors who get locked into the low rates. Interest rates can only go up so why lock into such low rates?