When will this huge Corporate Cash Hoard be Unleashed?

While the AFP Corporate Cash Indicator indicates companies continue to accumulate cash, the more pressing issue is when the U.S. Government will get around to deciding what tax policy they will have around repatriating that cash.

The U.S. government needs to tie huge infrastructure spend to revenue, and taxing offshore cash represents a great option and one that would carry less backlash than many other options.

Make no mistake, the decision is big. Because with the amount held offshore, any that gets repatriated will then be deployed. My bet is that many companies will either use it to provide a fat dividend to their shareholders, use it to retire debt or both (of course, they could do M&A as well, invest in existing businesses, share repurchases, etc.). The implications of these actions are immense. By retiring debt, companies can delever and decrease the need to borrow from banks and or the capital markets.

They certainly will not invest the cash in short term assets given the near zero yield (why bring the cash back in the first place?) Assuming they have a platform for early pay acceleration through Ariba, C2FO, Tungsten, Taulia, etc., the operational requirements of Treasury deploying cash in early pay and the relative return of that cash is driven by interest rates. If interest rates are 50bps for investing cash for 180 days, there’s no question an early pay construct from a risk managed perspective seems clear.

Offering their suppliers money at 4% or 6% etc. makes sense for everyone – it’s win win. You don’t need to squeeze them with 24% APRs. The hurdle is the operational work involved and this includes the financial accounting issues of treating the discount revenue and potentially using third party cash.  So perhaps we will see some of this offshore money going into their supplier ecosystem.

My bet – if they have debt, retire that first. Second, provide shareholders a windfall and assuming the M&A options are not there, potentially develop more guidelines around investing in their supplier ecosystem.

What do others think?

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