Shareholders are already getting more value from the deal, since they won’t have to worry about the tax cost of bringing the company’s $18-billion cash hoard back from overseas to pay dividends. But the company’s new owners will stand to benefit, too. They have told the US regulators that they will bring some $7.4 billion in cash from their foreign subsidiaries. If the company pays the statutory 35% corporate tax on that money, it will cost around $2.6 billion.
However, the company is also issuing some $15.5 billion in debt to finance the deal. The terms of that issuance are as yet unknown, but Dell’s current bond portfolio offers coupon rates ranging from 1.4% to 7.1%, depending on maturity and other factors. So let’s say 5% is a good rule of thumb for the company’s yearly interest rate payments. That means the company will be paying its lenders some $775 million each year so that Michael Dell, Silver Lake private equity and Microsoft can have the privilege of owning Dell.
But that $775 million is tax-deductible, which reduces the tax costs of repatriating that money by nearly one-third. That’s a lot of extra money to put toward improving Dell’s bottom-line.