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Google says it needs up to $30 billion cash overseas for deals

LiveMint logoLiveMint 21-05-2014 Brian Womack

San Francisco: Google Inc. is keeping a large portion of its cash outside the US 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 US taxes by keeping foreign earnings abroad. Google needs the cash for deals as competition rises overseas, according to a 20 December letter to the US securities and exchange commission (SEC), filed on Tuesday as part of a correspondence 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 US 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 earlier this year of digital-thermostat maker Nest Labs Inc., based in Palo Alto, California. The company also has made several smaller purchases, benefiting Google’s 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 US-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 US, we would be required to accrue and pay US 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 US and our current plans do not demonstrate a need to repatriate them to fund our US operations.

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 centres and other operations. The company also needs $12 billion to $14 billion for a research-and-development cost-sharing agreement, according to the letter.

Disclosure questions

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. Bloomberg

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