Today CRM giant Salesforce announced that it intends to raise $1 billion, with the potential for $150 million more, in long-term convertible debt.
The sum is large compared to the company’s current cash position. At the end of its most recent quarter, Salesforce had cash and equivalents of $747 million, and short-term marketable securities of $120 million. Thus, the $1 billion it intends to raise will, before costs are accounted for, more than double its free dollar pool.
The company, however, intends to hedge the debt to help prevent potential dilution of its stock. This will likely help ease investors jittery at a potential share price decline. In after hours trading, Salesforce dipped, but has since recovered and is now in the green.
The company hopes that the “convertible note hedge transactions” will “reduce the potential dilution to salesforce.com’s common stock upon the conversion of the notes.”
What does the company intend to do with the mountain of cash? $1.15 billion – assuming the full amount is raised – is a weapon that Salesforce intends to swing, perhaps at smaller companies. Funds raised may be used for “possible acquisitions of, or investments in, complementary businesses, services or technologies, working capital and capital expenditures.”
If you are a small player in the CRM market, Salesforce may come knocking, checkbook in hand.
Salesforce is worth $27 billion at present, giving it a relatively high market cap to cash ratio for a modern technology company. The $1 billion sum represents roughly 3.7 percent of the value of the firm.
Top Image Credit: Emmanuel Huybrechts