Microsoft has more than $50 billion in cash and liquid investments, but more than 80% of it is parked overseas — mostly in Ireland — for tax reasons.
If Microsoft brought some of that cash home — say, to pay a bigger dividend — it would face a big tax bill.
But if Microsoft uses that cash to buy non-U.S. companies, it never has to be repatriated.
In fact, Steve Ballmer specifically mentioned that Skype is based in Luxembourg in the press conference announcing the takeover, and said that it was an appropriate use of the company’s cash.
Add to that Microsoft’s recent multibillion dollar deal with Nokia and its 2008 acquisition of Norway’s FAST for $1.2 billion — its last big buy before Skype — and it’s clear that Europe is on Microsoft’s radar.
So which other European companies might be a good use of the company’s overseas assets?
Last December we argued that Microsoft should just up and buy Nokia -- or at least its handset business -- to increase its mobile revenue dramatically. The companies' partnership got Microsoft software onto Nokia phones, but it still doesn't solve the revenue-per-unit problem for Microsoft, which charges only about $15 per phone for its software. Now, according to well-connected Russian blogger Eldar Murtazin, Nokia is talking about selling its hardware business to Microsoft outright.
London-based Spotify has a hot brand, an outstanding free desktop app, and a valuation of around $2 billion -- easily affordable. Microsoft could integrate Spotify into Windows Phone 7 and make Google's music service look hopelessly incomplete -- it might even put Microsoft on par with Apple as a mobile digital media provider.
Of course, Microsoft already has a subscription music service called Zune Pass, but almost nobody uses it. Product duplication didn't stop it from buying Skype.
Windows Phone is the only phone with Xbox Live built in. Now imagine if it were the only phone that could play the next 10 sequels to Angry Birds. If nothing else, Finnish mobile developer Rovio has proven it knows how to make addictive mobile games, and Microsoft needs addictive apps for Windows Phone.
This would be in line with Microsoft's history as well: Microsoft bought a bunch of game developers to boost the Xbox business when it was getting started, and one of them, Bungie, created Halo, the game that put the console on the map. Plus, Rovio just raised a round at pre-money valuation of $200 million, making it a bite-sized acquisition for Microsoft
Another way that Microsoft could put Windows Phone on top: buy this cool Dutch company that makes an 'augmented reality' browser for iPhone, Android, and Nokia's Ovi -- and then make sure most of its future development work goes toward Windows Phone.
If Microsoft wants to turn around its money-losing online ad business, it should be taking a close look at this French ad retargeting company, which helps advertisers track which ads you've seen and then displays ads for the same products on other sites. Plus, it would keep Criteo out of Google's hands.
Bing is nicking away at Google's market share in the U.S., but overseas it's a non-starter. But Yandex is the Google of Russia, with more than 60% market share. Last week the company filed to go public at a price that will probably come in between $6 billion and $9 billion -- expensive, but Microsoft has shown it's willing to spend big to keep Google on its toes.
This rumour cropped up last fall and seemed unlikely at the time: Microsoft already bought Autonomy competitor FAST in 2008 and has begun integrating it into its SharePoint line, and Autonomy is even more expensive than it was then, with a market cap of about $7 billion (4.3 billion pounds).
But as the Skype buy shows, Microsoft isn't afraid of dropping billions on key areas. Buying Autonomy would lock up the enterprise search market, make it harder for Google to use its enterprise search business as a wedge to drive other products like Apps and Chromebooks, and would add almost $1 billion a year in new revenue to the Business Division, which has been driving Microsoft's growth for the last three quarters but will face harder year-to-year comparisons after June, when the anniversary of the Office 2010 release is passed.
Microsoft is reportedly building a Windows App store for Windows 8, but it could buy this company and its work would basically be done. Allmyapps just opened in January and got more than 100,000 users in its first three months.
ARM designs the chips that go into the vast majority of smartphones and tablets today. In 2010, Microsoft deepened its longstanding partnership with ARM and this January announced it was designing Windows 8 to work natively on ARM chips so it could compete in the tablet market -- the first time a Microsoft desktop OS has been built for anything other than Intel designs.
Buying ARM would be expensive -- ARM's market cap is more than $12 billion, and Microsoft would have to pay a premium -- but it would immediately turn Microsoft from mobile also ran into arguably the most important mobile company in the world. Microsoft historically hates the hardware business because of its high cost of revenues, but ARM doesn't actually fabricate chips, it just designs them.
It would have a hard time passing regulatory approval.
It would be a monster acquisition -- SAP is the fourth-largest software company in the world with a market cap of about $75 billion, $18 billion in annual sales, and more than 50,000 employees. But it would signal that Microsoft intends to dominate enterprise software, and would put Oracle and IBM into panic mode.
It would also have a really hard time passing antitrust scrutiny.
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