Microsoft goes a-begging to fund Yahoo deal

Company is turning to debt to finance its Yahoo acquisition. The stakes are obviously very, very high.

Microsoft has more money in the bank than most software companies will make in their entire corporate existences.

Microsoft has more money than many countries.

Microsoft has enough money to buy every open-source software company with cash...several times over. (OK, that last one might not have been saying much.)

And yet Microsoft expects to borrow money for the first time in its history to fund its deal for Yahoo.

This is a testament to just how big this deal is for Microsoft, which has roughly $19 billion on the bank and no debt--both of which are hugely impressive numbers.

Microsoft expects to pay roughly half the $44.6 billion in stock and the other half in cash. If this does mean between $22 billion and $23 billion in cash, Microsoft will be short $3 billion to $4 billion--and that's if Microsoft spends all of its balance sheet, which it is far too smart to do.

To put in this perspective, no one should underestimate just how significant this deal is for Microsoft. The company will eliminate its bank balance, or cut it down so considerably that Microsoft will be (relatively) prone to the vagaries of the market again. No longer will it be able to subsist for years on its balance sheet...well, not until it throws off another few billion in profit next quarter.

Even so, this is a risk for Microsoft. When Microsoft takes risks like this, it means the stakes are very, very high.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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