economy

Salesforce issues $25 billion in debt to buy back stock. Should we be concerned?

Raising debt to repurchase shares is a move that deserves scrutiny.

Salesforce issues $25 billion in debt to buy back stock. Should we be concerned?

TL;DR

  • Salesforce initiated a $25 billion accelerated stock buyback using debt financing.
  • Raising debt to repurchase stock carries financial obligations and potential legal consequences.
  • Management believes Salesforce's stock is undervalued after recent AI-driven sell-offs.
  • The move is intended to lower the company's weighted average cost of capital (WACC).
  • The cost of debt is lower than the cost of equity for Salesforce.
  • A lower WACC can increase the present value of future earnings and cash flows.
  • The strategy has resulted in a credit rating downgrade by S&P Global due to increased leverage.
  • The success of the buyback hinges on Salesforce's ability to service its debt and adapt to AI advancements.

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