Two big stories in the news recently have been Microsoft’s planned acquisition of Nokia’s devices division and Verizon’s acquisition of Vodafone. But will simply acquiring other companies keep them from falling to the same fate as BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)?
Bloomberg editors believe U.S. policies are to blame for these acquisitions, which they say have the potential to bankrupt the companies.
Fiscal policies shaped Microsoft’s, Verizon’s decisions
They note that when Microsoft Corporation (NASDAQ:MSFT) announced it would buy Nokia, it said it would do so with its foreign cash. That cash is unlikely to see the light of day on this side of the pond, so the company might as well put it to good use, right? After all, tech companies like Microsoft are known for keeping large amounts of cash overseas so that they don’t have to pay the high U.S. corporate taxes on them. The only way these companies will repatriate most of this cash is if Uncle Sam gives them a tax cut on it.
And what about Verizon Communications Inc (NYSE:VZ)’s acquisition of Vodafone? The mobile carrier said it will borrow to pay for that $130 billion acquisition, taking advantage of interest rates that are very low right now. Once again, those interest rates are the result of U.S. policies set by the Federal Reserve. After the Fed starts tapering the bond buying program, interest rates are going up and Verizon will find itself paying even more to acquire Vodafone.
What about patents?
One of the reasons BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s value isn’t expected to fall below certain levels is because of the company’s treasure trove of patents. Microsoft itself has a significant patent portfolio and will acquire thousands of additional patents along with its partial acquisition of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V).
Google Inc (NASDAQ:GOOG) is also sitting on a major patent portfolio and added to what it already owned with a previous acquisition: Motorola. But patents alone aren’t enough to save a company if the history of Eastman Kodak is any indication. It declared bankruptcy last year, although this week it did emerge from Chapter 11 with a new strategy. Instead of doing the same old thing, the company will shift into commercial 3-D printing.
Where’s the innovation?
Both Microsoft Corporation (NASDAQ:MSFT) and Verizon Communications Inc (NYSE:VZ) stand at a crossroads right now. They’re both trying to make major acquisitions, and Bloomberg editors note that they’re trying to model themselves after their competitors. However, modeling isn’t what will ultimately get these companies ahead.
They said in the context of U.S. fiscal and patent policies, both of these acquisitions make sense. However, they believe the deals might not happen “if Congress fixed corporate-tax laws so that companies didn’t feel the need to stockpile cash offshore, and if patent laws encouraged innovation over litigation.”