Bloomberg News

Google Needs Up to $30 Billion in Cash Overseas for Deals (1)

May 21, 2014

Google

Google Inc. branded candy sits on display inside the company's offices in Berlin, Germany. Photographer: Krisztian Bocsi/Bloomberg

Google Inc. (GOOG:US) is keeping a large portion of its cash outside the U.S. so it can use as much as $30 billion for possible acquisitions, the company said in a letter to regulators.

The owner of the top Web-search engine generates about half of its revenue overseas, and it avoids paying U.S. taxes by keeping foreign earnings abroad. Google needs the cash for deals as competition rises overseas, according to a Dec. 20 letter to the U.S. Securities and Exchange Commission, filed (GOOG:US) yesterday as part of a correspondence (GOOG:US) with the agency regarding disclosures.

“We continue to expect substantial use of our offshore earnings for acquisitions as our global business has expanded into other product offerings like mobile devices,” according to the letter. “It is reasonable to forecast that Google needs between $20 to $30 billion of foreign earnings to fund potential acquisitions of foreign targets and foreign technology rights from U.S. targets in 2013 and beyond.”

Google, while facing criticism for keeping the cash parked overseas, has been stepping up its deal activity, including the $3.2 billion purchase this year of digital-thermostat maker Nest Labs Inc., based in Palo Alto, California. The company also has made several smaller purchases, benefiting its advertising, cloud services and mobile businesses.

“In the past few years we have completed significant acquisitions with the individual deal size increasing in more recent years, and this trend is likely to continue in future years,” the Mountain View, California-based company said in the letter, which was a response to a question from the SEC about its plans for reinvesting foreign earnings.

Repatriating Funds

The largest U.S.-based companies added $206 billion to their stockpiles of offshore profits last year, according to securities filings from 307 corporations reviewed by Bloomberg News. At the end of last year, $33.6 billion of Google’s $58.7 billion of cash, cash equivalents and marketable securities was held by its foreign subsidiaries.

“If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds,” the company said in a filing in February. “However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.”

Games, Content?

“Google’s overriding strategy is to categorize and gather Internet data, which it sells to advertisers,” said Richard Windsor, an independent analyst at Radio Free Mobile. “Any asset that has an incremental effect on that strategy is a viable target.”

Collecting data from games is a gap Google may look to fill, Windsor said. A game developer, such as Montreuil, France-based Ubisoft Entertainment SA (UBI), could be on the shopping list, he said.

Google could also look at buying content companies similar to Twitch Interactive Inc., Windsor said. Google has held talks to purchase video service Twitch to boost its YouTube site, a person with knowledge of the matter said this week.

The company may also go beyond the online and advertising industries, said Hiroshi Naya, an analyst at Ichiyoshi Research Institute Inc.

“Google will invest in industries that haven’t yet been transformed by the Internet, such as automotive, robotic and biotechnology,” Naya said by phone. “Google will make investments that will pay off 10 years in the future.”

Disclosure Questions

In addition to acquisitions, the company sees other uses for overseas earnings, such as $2 billion to $4 billion for capital expenditures. That includes data centers and other operations. The company also needs $12 billion to $14 billion for a research-and-development cost-sharing agreement, according to the letter.

The filing was part of an exchange between the SEC and Google that began last year related to questions about disclosures in the company’s 2012 annual report. The SEC pressed for more information on topics including advertising, mobile and revenue.

The company eventually said it would reveal more details on advertising. Last month, Chief Financial Officer Patrick Pichette said Google would break out prices of promotions -- and the number of clicks on them -- for both Google sites and its network partners.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward, Ville Heiskanen


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    (Google Inc)
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