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article imageCash-rich global firms face calls to crack open war chests

By Peter Brieger (AFP)     Apr 16, 2014 in Business

Impatient shareholders are calling on the world's top firms to start spending some of the eye-popping $2.8 trillion in cash built up since the financial crisis, as analysts warn that their thriftiness could be holding back global growth.

The combined war chests held by companies including Apple, Google and Samsung -- roughly equivalent to the size of France's economy -- has swelled since the 2008 global downturn hammered stock markets and saw nervous firms pinching their pennies as they waited out the storm.

But even as markets bounced back and business confidence recovered, the cash piles kept growing.

That has prompted a drumbeat of calls for firms to start spending more on share buybacks or boosting dividends, building new factories, or acquiring rival firms.

Among those targeted was Toyota, which last month announced a plan to start buying back $3.5 billion worth of its shares after its annual investor meeting in June.

The move by the world's largest automaker would be the first time in five years it has embarked on a buyback, which tends to boost a company's stock and signals growing confidence among management.

Members of the media gather after the event introducing Apple's iPhone 4S  at the company'...
Members of the media gather after the event introducing Apple's iPhone 4S, at the company's headquarters in Cupertino, California, on October 4, 2011
Kevork Djansezian, Getty/AFP/File

"Since Toyota has said it would scale down its investment over the next three years, share buybacks are one of the practical options that a cash-rich company can take," said Yusuke Miura, analyst at Tokai Tokyo Research Center in Japan.

Toyota is far from alone.

Together, Apple, Microsoft and Google have over $300 billion in cash, while US non-financial firms held a record $1.64 trillion in all -- double the amount back in 2007, according to a report last month by ratings agency Moody's.

While major US firms have also increased their debt in recent years, the cash buildup has generated criticism from investors and critics who say some of America's best-known firms are hoarding money overseas -- and out of the hands of the taxman.

But "Moody's expects businesses to remain cautious over the next year, with spending on capital investments, dividends, acquisitions and share buybacks going up only slightly," it said.

- Cash 'rethink' -

Google building sign
Google building sign
Justin Sullivan, Getty/AFP/File

Earlier this year, US activist investor Carl Icahn said Apple was "doing a disservice to shareholders", despite the iPhone maker agreeing to a plan that would return some $100 billion to investors including $60 billion in share buybacks.

The billionaire has since said he would no longer press Apple -- whose cash holdings are larger than Hungary's economy -- after a proxy advisory firm recommended against his proposal.

"Companies have been well served during the financial crisis by being fiscally prudent," said a January report by consultancy Deloitte, which pegged the liquid holdings of the world's top 1,000 firms at about $2.8 trillion.

But it added that "this could hamper their progress in times of recovery. Companies now need to rethink their cash strategy to create growth opportunities".

Mark Carney, current head of the Bank of England, was more blunt in a 2012 speech as he derided unused corporate cash as "dead money".

"If companies can't figure out what to do with it, then they should give it to shareholders and they'll figure it out," Carney, then governor of the Bank of Canada, was quoted as saying.

It is a feeling shared by some investors in technology giant Samsung, which has built up over $50 billion in cash, the largest pile among South Korean firms.

Samsung's tiny dividend yield has resulted in increasing pressure on its chief financial officer Lee Sang-Hoon, who vowed late last year to "put more emphasis on shareholder returns" and boost payouts.

Lee defended Samsung's liquid holdings, saying the firm would boost investment in research and development.

But some have questioned whether notoriously low dividends among South Korean firms, including Samsung, turned foreign investors away from its domestic stock market.

"South Korean companies' dividend yields are extremely low, which will only increase public calls for more... payouts," said Ryoo Joo-Hyung, analyst at Shinhan Investment Corp.

The Deloitte study found that firms have been boosting their capital spending, while mergers and acquisition activity was also recovering, particularly among firms with less cash on their books -- and whose stock returns outpaced the most cash-heavy companies.

"It seems the markets are rewarding their relentless pursuit of growth," it said.

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