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How Tax Bill Could Affect Oracle


Oct. 9 2019, Updated 8:48 p.m. ET

Tax bill’s impact on Oracle’s debt and stock buybacks

Earlier in the series, we discussed how the approval of the tax bill has brought on a surge in stock buybacks. Oracle (ORCL) also benefitted from this trend and announced the addition of $12 billion to its stock buyback program.

In November 2017, Oracle announced a bond sale of $10 billion, which was the eighth largest corporate bond sale of 2017 at the time. Oracle, like tech peers Apple (AAPL), Microsoft (MSFT), and Google (GOOG) kept cash overseas to avoid the US’s current 35% tax liability. This liability is triggered as soon as the overseas cash is repatriated. The recent tax plan aims to put a one-time repatriation tax on the funds.

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Tax bill will fuel stock buybacks, which could make CEOs and major stockholders wealthier

The above presentation shows that stock buybacks have skyrocketed after the Senate passed the tax bill. In share buybacks, tech companies use their cash to buy back their own shares, which in turn reduces the number of shares outstanding and increases EPS (earnings per share). Investors and executives whose compensation is directly tied to the company’s share price tend to prefer share buybacks.

According to The Intercept, Oracle’s addition of $12 billion in its stock buyback program would give Larry Ellison, Oracle’s co-founder, roughly $103.7 million in stock over the next five years.

Many believe that the tax bill will benefit CEOs more so than it will create jobs. The Intercept cited Senator Elizabeth Warren, as saying, “Corporate CEOs have made clear that the massive tax giveaways in the Republican plan will not be passed on to workers but to rich investors — including the wealthy foreign investors who own about a third of the shares in American companies.” She added, “This plan will do nothing to stimulate the economy or raise wages — but it sure will make a bunch of rich guys a lot richer.”


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