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Microsoft said to plan debt sale to pay for dividends and share repurchases

BLOOMBERG

Microsoft Corp is planning to sell debt this year to pay for dividends and share repurchases because too much of its cash is held overseas, according to a person familiar with the matter.

The company would try to raise as much as it can without jeopardizing its debt rating of AAA, the highest possible, said the person, who declined to be named because the plans are confidential and not completed. Microsoft could probably issue as much US$6 billion more in debt without putting its rating at risk, according to data compiled by Bloomberg.

Microsoft chief executive Steve Ballmer is under pressure to return some of the company’s US$36.8 billion in cash and short term investments to investors in the form of dividends or share buybacks. Much of that is held overseas, requiring Microsoft to pay taxes on money brought home. The software maker would follow Home Depot Inc and Dell Inc, which issued bonds this month as investment-grade borrowing costs hover near record lows.

A debt offering may come before the end of the company’s fiscal year, which closes next June, and could come as soon as this calendar year, the person said.

Executives of the company are weighing share repurchases and dividend increases to boost the stock, which has fallen 18 percent this year.

Microsoft started paying a dividend in 2003 and offered a US$3-a-share special dividend in 2004. The company has repurchased more than US$78 billion in stock since fiscal 2006 and is in the middle of a US$40 billion buyback allowance that runs through 2013.

A decision to take on more debt, raise the dividend or increase the buyback plan would involve board approval.

Microsoft sold its first debt in May last year, a US$3.75 billion offering, in a bid to diversify its capital structure and add to its cash pile for acquisitions, capital expenses and share buybacks.

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