Microsoft Would Borrow To Fund Yahoo Acquisition, CFO Says

Microsoft had previously said it would use a mix of stock and cash to purchase Yahoo.
In a sign of just how badly Microsoft wants Yahoo, the software maker's CFO said Monday that the company would borrow cash for the first time to fund its proposed $44.6 billion acquisition of its Internet rival.

Microsoft had previously said it would use a mix of stock and cash to purchase Yahoo. CFO Chris Liddell on Monday said the cash portion of the deal would be more than $20 billion. He added that Microsoft could cover that amount with existing cash, but would prefer to use external funding for a portion of it.

"We could fund most of that through our cash holdings, but it's likely we're actually going to borrow for the first time. It will be a mixture of the cash on hand, plus debt," Liddell, speaking to a group of financial analysts, said of Microsoft's Yahoo bid.

Liddell didn't say how much external financing Microsoft would seek.

Liddell's disclosure shouldn't be too surprising. Microsoft had about $21.1 billion in cash and cash equivalents at the end of its most recent quarter. So the company, in the absence of turning to the capital markets, would have to use virtually all its cash -- plus more than $20 billion in stock -- to buy out Yahoo.

Microsoft's cash reserves took a hit last year when the company completed its $6 billion acquisition of digital advertising agency aQuantive. The deal, which closed in August, was an all-cash transaction.

Microsoft's offer values Yahoo at $31 per share, which represents a 62% premium over Yahoo's closing stock price the day before Microsoft's announcement Friday that it intends to purchase the company.

Microsoft's willingness to go into hock to acquire Yahoo is an indication of the strategic importance it places on the deal as it seeks to catch Google in the Web search and advertising markets. "We're trying to increase scale and increase capacity to give ourselves a better chance to be more successful more quickly," Microsoft CEO Steve Ballmer said at Monday's analyst meeting.

Yahoo has said it is considering Microsoft's offer, but it has yet to respond formally.

Also at the analysts meeting, Liddell declined to say whether Microsoft was already buying up Yahoo stock on the open market in an effort to exert greater control over the company's board. "No comment," Liddell said in response to a question on the subject.

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