I recently read an interesting footnote to last week’s £7bn purchase of UK software star Autonomy by HP.
Apparently the deal was helped by a US tax law that puts a punitive 35% tax on any cash that US companies earn overseas, when that money is brought back into the country. As a result, many US multinationals – and in particular, many of their technology giants – are sitting on huge piles of cash that they can’t invest in their home country without losing more than a third of it.
So that means that, for example, HP was able to use its overseas cash pile to buy Autonomy in the UK, effectively saving itself 35% of the purchase price had it tried to do the same with its US cash.
According to The Telegraph, IBM, Cisco, HP, Google and Microsoft are sitting on more than $130bn of cash, much of which is held outside the US – Cisco alone cites $40bn of cash overseas.
With that much money floating around – and with UK share prices for tech companies historically staying lower than those traded in the US – there are not just bargains to be had in a depressed stock market, but huge tax efficiencies for US buyers too.
Good news for investors, of course, but not so good for the independence of the UK IT industry. And there’s not a thing anyone can do to stop it happening. The sales start here?