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Why Is Pfizer Borrowing $1 Billion When Its Cash Stockpile Totals Nearly $22 Billion?

By Keith Speights and Brian Orelli, PhD – Aug 27, 2021 at 6:14AM

Key Points

  • Pfizer recently announced a $1 billion sustainability bond.
  • The big drugmaker shouldn't really need additional money with a cash stockpile totaling nearly $22 billion.
  • However, there are several reasons why Pfizer might issue the bond, notably the low cost of borrowing.

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There are several good potential reasons for the move.

Pfizer (PFE -0.49%) isn't hurting for cash. The company reported a cash stockpile of nearly $22 billion in its second-quarter update. However, it recently announced that it's borrowing $1 billion. In this Motley Fool Live video recorded on Aug. 18, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss why the big drugmaker decided to borrow money when it already has plenty of cash on hand.

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Keith Speights: We're talking about Pfizer a little bit there. At the end of the second quarter, Pfizer's cash position totaled $21.7 billion, a pretty hefty cash stockpile there. With sales from its COVID-19 vaccine and other products continuing to pour in, it's likely, if not a certainty, that Pfizer has even a greater cash stockpile now than it did at the end of the second quarter. But the company just announced that it's issuing a $1 billion sustainability bond.

Basically, Pfizer's borrowing more money, even though it has a huge cash stockpile that it could tap into, at least in theory. Some investors might be puzzled by this, but big companies like Pfizer don't make moves that don't make sense usually anyway.

Brian, why is Pfizer issuing bonds when it has a big cash stockpile that it could potentially tap? is this a smart move for the company?

Brian Orelli: First and foremost, it's probably because the money is so cheap. Pfizer's only paying 1.75% interest rate on this 10-year bond/ I wish my bank would be convinced that I was so creditworthy, that I could borrow money at 1.75% for 10 years. I would certainly do it. Certainly, I can think of ways to invest $1 billion at one point so I would pay back 1.75%.

Pfizer says it's going to use the capital for COVID. I'm quoting here, "COVID vaccine research and development capital expenditures in connection with the manufacturer and distribution of COVID-19 vaccines and other projects at Pfizer or any of its subsidiaries that have environmental or social benefits." I think that's the social part of the bond.

I think probably the biggest issue here is, where is that $21.7 billion that Pfizer has in cash on its books? If it's spending money in the U.S. to advance its manufacturing of its vaccine but the cash is overseas, then it has to pay taxes to bring that cash back into the U.S. and the interest that it's paying on the bond is probably substantially less than the taxes it would pay to bring that money from overseas back into the U.S. I think it's just a money play there in terms of making the best financial decision for shareholders.

Speights: It might seem unusual for a company that has that much money to go borrow money. But Brian, you just laid out several reasons why Pfizer might find it beneficial to do this. You'll probably see other companies make similar moves. They have plenty of cash that they could use, but they end up borrowing some because there are just some financial reasons why it makes sense for them to do it.

Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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