Throughout his investing career, Buffett has done all that he can to release excess cash from companies so that he can better deploy in through his buying of other assets. He has often done this through accumulating stock and then demanding changes by the management. As just one example, in 1958 Buffett bought heavily into Sanborn Maps, a company that was trading for around $45 with an asset portfolio worth $65 a share. Buffett bought enough shares of Sanborn Maps to take effective control of the company, eventually forcing the liberation and distribution of the assets for his other investing goals. With more funds at his disposal, Buffett does this now through Berkshire Hathaway buying entire companies.
Interestingly enough, tech behemoths such as Apple, Microsoft Corporation (NASDAQ:MSFT), and Intel Corporation(NASDAQ:INTC) now resemble insurance companies on steroids with the cash floats they produce. Making this even more valuable in the eyes of Buffett is that much of this cash is held outside the United States, generating a significant tax advantage. Buffett has written about how the untaxed capital gains of its stock portfolio is a tremendous competitive advantage for Berkshire Hathaway. In that same way, the cash held overseas by Apple (over $70 billion), Microsoft (over $60 billion), and Intel (over $10 billion) is an edge over rivals as it is not taxed.
From that a float is produced.
Not being taxed is considered a loan from the US Treasury, according to Buffett. In that way, Apple, Microsoft, Intel and other companies with billions abroad profit from the float of taxes that are not paid. It is money “that will eventually go to others,” but until then a float is generated in the billions due to the untaxed money that is kept abroad by Apple, Microsoft, and Intel.
Einhorn is moving as Buffett has in the past to force company management to release capital into the hands of the shareholders. If Einhorn is successful, Foolish investors could be witnessing similar moves on Microsoft, Intel and other tech companies that have far more cash than is needed to responsibly finance the operations of the business. With the high profit margins of Microsoft (21.20%) and Intel (20.63%), the cash reserves should increase, making these companies even fatter targets for investors seeking to have those funds disgorged to shareholders. That could result in profits for Foolish investors and others from special dividends, share buybacks, and increased payouts to reward the shareholders.
The article Apple’s $137 Billion in Cash: What Would Buffett Do? originally appeared on Fool.com and is written by Jonathan Yates.
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