Bloomberg News

Cisco to Use Cash Held Overseas to Fund $5 Billion NDS Deal

March 15, 2012

Cisco Systems Inc. (CSCO) said it will finance its $5 billion purchase of U.K. video-services software company NDS Group Ltd. with cash held overseas.

Cisco, the world’s largest maker of equipment for computer networks, had $46.7 billion in cash at the close of its second quarter ended Jan. 28. All but $5 billion was held outside the U.S., said John Earnhardt, a spokesman for the San Jose, California-based company.

Cisco, which announced the agreement to buy NDS today, is part of a group of U.S. companies that have been lobbying for a repatriation tax holiday for offshore profits. U.S. companies are using such cash more often to buy foreign companies, as taxes on most overseas earnings can be deferred indefinitely. When brought back to the U.S., the money is taxed at the federal and state combined corporate rate of 39.5 percent, minus credits.

John Chambers, Cisco’s chairman and chief executive officer, has advocated lowering the rate, saying companies that do business internationally are taxed twice, once in the local market and then again when earnings are repatriated to the U.S.

Before Cisco faced a slowdown in its business and cut 6,500 jobs last year, Chambers had said a tax holiday would let the company expand its workforce by at least 10 percent. Chambers has since qualified that statement, saying in an interview aired on Bloomberg Television on Jan. 26 that hiring will depend on the economy.

Video Software

Opponents of a tax holiday, including Democratic Senator Carl Levin of Michigan, have argued that companies used proceeds from a 2004 tax holiday to buy back stock and then cut jobs.

Cisco agreed to buy Middlesex, England-based NDS to add software used in next-generation video services as Chambers works to add more profitable products as part of a turnaround plan. The purchase price for closely held NDS includes debt and retention-based incentives, Cisco said in a statement today.

Microsoft Corp. (MSFT) used $8.5 billion of offshore cash to buy Luxembourg-based Internet phone service Skype Technologies SA last year.

To contact the reporter on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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