Overseas Corporate Cash Fuels a Shopping Spree

U.S. companies such as General Electric and Microsoft are using cash parked overseas to snap up foreign companies at more than double last year’s pace. Through the first seven months of 2011, there have been about $174 billion in deals in which U.S. companies bought foreign assets, nearly matching the total for all of 2010. “More U.S. companies are scouting the universe for an asset or a company they want and financing it with offshore cash,” says Marc Zenner, co-head of JPMorgan Chase’s corporate finance advisory group.

The pickup in dealmaking overseas comes as companies including Apple, Cisco Systems, and Pfizer push Congress for a holiday from taxes on cash held overseas that U.S. companies bring home. Under current tax law the federal income tax on most overseas earnings can be deferred indefinitely. When that cash is repatriated, it’s taxed at the federal and state combined corporate rate of 39.5 percent, minus credits for foreign income taxes paid. Statutory corporate tax rates for America’s main competitors hover around 30 percent. Zenner estimates that nonfinancial companies in Standard & Poor’s 500-stock index hold 40 percent to 60 percent of their $1.3 trillion of cash overseas—or as much as $780 billion.