Corporate Cash Balances

Over the weekend I read Jason Zweig's article on Corporate Cash Umbrellas (balances) in the Wall Street Journal several times trying to comprehend his reasoning for the article - I couldn't. Investors, especially activist shareholders as they are called, love to harangue companies and their management for items like carrying too much cash. Their has been a general distrust of companies with large cash hoards with arguments about how they don't know what to do with it so disburse it and let the shareholders decide and so on. A company didn't even have to hold a large cash balance to fall victim to these claims - leverage up, you don't use enough debt in your financial structure.

At this point in time it is easy to see the firms that leveraged up, they all have 'For Sale' or 'Going Out of Business' signs in their doors. The firms with large cash hordes don't have this problem but here Mr. Zweig is saying they have pushed the envelope too far in the opposite direction. Who is he to decide this? Does he know what the firms have planned for the future?

He names 4 companies - Exxon Mobil, Cisco, Apple and Johnson & Johnson. Exxon is involved in a capital intensive industry that is subject to wild swings as we have seen with the price of oil recently. If it were to keep cash levels low what would happen when it needed to invest in new fields or technologies at the same time that oil prices were dropping? I would like to believe that with oil prices at low levels Exxon is scouting out opportunities to acquire additional reserves which will surely rise in value given time.

Cisco is an acquisition engine, they use their cash to acquire competitors and to extend their reach. I grant that $30 or so billion is a lot of money but what if they do something earth shattering like buy a depressed stock such as HP ($70B), IBM ($124B) or more realistically EMC ($21B)?

Apple? Steve Jobs is sick so they need all the backup they can muster - or perhaps that is a great reason to pay it out now before they blow it trying to survive Steve Jobs.

Johnson & Johnson, has Mr. Zweig noticed the mergers in pharmaceuticals lately? Although I will readily admit that J&J doesn't have a great track record in acquisitions.

I find Mr. Zweig's attack on cash hard to swallow. With that said, I fully concur with his advice to actively participate in the Proxy Season. Shareholders have a responsibility to monitor their companies activities in general, cash is simply one aspect of this. American Investors are as apethetic as American Voters, perhaps more so, and both need to take a more active role in the management of thier investments and America.