That’s corporate cash management. I honed-in on that $106B in cash equivalents because it represented (and still represents) warehoused cash, by definition. In other words, by virtue of its categorization on Microsoft’s balance sheet, the GAAP accounting standard lets us infer that Microsoft did not intend to use this surplus cash immediate term, so it was (and is) the fairest number to use in assessing opportunity costs for the dollars spent on the LinkedIn acquisition. With an objectively-derived zero ROA, this cash category establishes a control group for the counterfactual — were Microsoft to have not acquired LinkedIn. (T-bills were yielding ~15bps at that time and institutional money market funds a bit less, so that’s effectively a zero ROA after tax, especially compared to LinkedIn’s forward book value growth rate. In sum, this is not the right bone to pick.)

Similarly, I excluded the additional $6.5B in balance sheet cash because I didn’t think it fair to assume that was as unencumbered. It’s held as “cash” because it intends to be used in short order — like a checking account as opposed to a savings account — whether for working capital, buybacks, etc.

You also mentioned:

In fact, MS chose to borrow money to fund the LinkedIn acquisition for tax purposes. Almost all of it was borrowed.

Yes, MSFT did a debt offering due to tax arbitrage and net IRRs, with the yields for the offering coming in incredible skinny — meaning that the discounted cash flow (DCF) net differential will be even more attractive for Microsoft/LinkedIn. I assume you understand the rationale as to why that was even more of a slam dunk than using cash (deductibility of bond interest, buybacks, the eventual repatriation holiday, etc), so I won’t delve into that.

Finally, your response mentioned:

As for the rest of your growth estimates in your article for both LinkedIn and MS, I can’t really comment since the source wasn’t linked.

Rest of the forward growth estimates came from Thomson Reuters IBES, which you can lookup with a subscription — although I’m pretty sure the public has access to free resources too.

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Annotote is the most frictionless way for you to get informed or inform others. Don’t waste time and attention — be the signal, not the noise.



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