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What you need to know for 01/23/2018

Companies putting cash to work

Companies putting cash to work

We should all be in such a bind: having more cash on hand than we know what to do with.

We should all be in such a bind: having more cash on hand than we know what to do with.

That’s the dilemma facing many corporate CEOs. According to the latest estimate from the Federal Reserve, U.S. companies are sitting on some $1.7 trillion in liquid assets, defined as cash and securities easily converted to cash.

It’s why cash played a big role in some of the mega-deals announced recently.

When Comcast Corp. said last week that it would buy out General Electric’s interest in NBCUniversal, it pledged cash for nearly three-quarters of the $16.7 billion acquisition.

Two days later, when Berkshire Hathaway said it would take a stake in the $23 billion buyout of ketchup icon H.J. Heinz, it put up a wad of cash for its share of the transaction.

And AT&T, announcing a plan last month to acquire major-market airwaves from rival Verizon Wireless, said it would pay $1.9 billion in cash for the spectrum licenses.

What gives? How can these companies be awash in so much cash when the economy is still a bit weak-kneed from the Great Recession?

Actually, the firms behaved as many of us did during the downturn, cutting back, hunkering down and pinching pennies. As a result, they generated savings and now are trying to figure out how to put that money to work.

Some are going the acquisition route; others are buying back stock; still others are returning money to shareholders as dividends.

Warren Buffett, Berkshire Hathaway’s CEO, hasn’t been shy about being on the hunt for “a major acquisition.” In his annual letter to shareholders two years ago, the much-admired Oracle of Omaha wrote, “Our elephant gun has been reloaded, and my trigger finger is itchy.” He reiterated the big-game analogy last week in an interview about the H.J. Heinz deal on the cable network CNBC, telling the business news show “Squawk Box” that “I’m ready for another elephant.” Berkshire Hathaway had $47 billion in cash at the end of 2012, he said.

GE, after agreeing to sell its 49 percent stake in NBCUniversal, immediately directed some of the proceeds to its stock buyback plan, CEO Jeff Immelt said on a conference call. GE’s board approved boosting the total value of shares to be repurchased from $25 billion to $35 billion through 2015, he said.

When companies buy back stock, share prices rise and investors see the value of their holdings increase.

But not putting cash to work quickly enough can create its own headaches. Just ask Apple Inc. CEO Tim Cook.

Apple’s cash reserves total $137.1 billion and shareholders have been agitating for action for awhile. Last year, the company pledged to direct $45 billion over three years to paying investors a quarterly dividend (the first since 1995) and to repurchase shares. It also paid cash for a 2012 acquisition.

That wasn’t enough, though, for the manager of a hedge fund that holds a big chunk of Apple stock, who painted the company as hoarding cash due to a “Depression-era mentality” about money.

CEO Cook answered the criticism at a technology conference in San Francisco last week, saying Apple liked to have cash on hand for research and development investment, expanding its chain of retail stores and moving on possible acquisitions.

The technology news website GigaOM said Cook used the same phrasing at the same conference a year ago, just before announcing the quarterly dividend. Its takeaway: something’s brewing.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at

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