Replies to post #71066 on Biotech Values

[DewDiligence]

Re: Repatriation Part II

Get ready for round two of the repatriation bill. Senator John Ensign introduced as part of the new stimulus plan another round of repatriation at a corporate tax rate of ......... 5%.

Roger that. Is it correct, then, that all tax-advantaged repatriations under Part I (i.e. the “AJCA”) are now complete? That was my understanding.

[DewDiligence]

Cash Is King—But Only If It’s in the Right Location

[One reason for the high level of interest in ex-US acquisition targets such as CRXL: that’s where most of Big Pharma’s free cash is located.]

http://online.wsj.com/article/SB123188232352278577.html

›JANUARY 14, 2009
By JOHN JANNARONE and SARA SILVER

Cash on U.S. balance sheets was once a juicy target for activist investors. Now it is a source of comfort for those seeking security in the stock-market rout.

But is cash always liquid? And are cash-rich balance sheets really as powerful as they seem?

Take the pharmaceutical and technology industries. Between them they include some of the world's biggest companies with ultra-secure balance sheets… Nine of the largest pharmaceutical companies, meanwhile, had a combined $113 billion in cash and investments versus $83 billion of debt, according to Moody's.

But a large proportion of that is parked overseas and can't be brought home without paying an extra tax charge of as much as 30%. That can make a big difference. Some large pharmaceutical firms hold as much as 75% of their cash abroad, according to Moody's. Since overseas cash piles can't be brought home without a penalty, [v]the ratings provider applies a discount in its analysis. Pfizer's $34.4 billion in cash and investments gets a 30% haircut, as does Johnson & Johnson's $14.8 billion.

For cash-rich companies, it is an annoyance. Even with all those reserves, J&J had to issue debt last year to make dividend payments because so much is held abroad, according to Moody's. Meanwhile, those who want to take advantage of the current market turmoil to buy rivals might find themselves pushed toward overseas deals if they want to use cash. Moody's reckons Wyeth has at least half its $14.2 billion in gross cash and investments overseas -- allowing it to pay the expected $1.5 billion bill for Dutch vaccine maker Crucell without paying extra U.S. tax.

It is possible that one day there will be another amnesty, like that of 2005. Then, companies repatriated billions of dollars earned in low-tax foreign jurisdictions and paid just 5.25% tax, a fraction of the 30% they would normally owe.

But in the absence of that, investors should be wary as they focus on companies' financial strength. It isn't just the amount of cash on the balance sheet that matters, it is where that cash is stashed.‹