Although it is believed that it will be used to invest or buy back shares, Companies repatriating cash will use it to pay down debt. This will be a purely accounting transaction.
Currently, the cash companies have overseas is used to back-up debt and thus reduce borrowing cost. They “have set up ways to borrow money from their foreign subsidiaries” 1.
65% of companies have already indicated that they will use repatriated cash mainly to pay down debt 2, a purely accounting transaction.
Shares buy back will not happen, because they will destroy value. Apple has a debt of $100 Billion and cash overseas. Its shares are trading at the highest P/E in 5 years. If it uses cash to buy back shares, it will increase the risk of a significant decline thereafter.
Warren Buffet has the best formula for buybacks: it should only be done when the price of it is undervalued 3 That is clearly not the case today for Apple or the S&P 500. Thus, the right thing to do will be to pay debt.
Companies do not invest because they have cash. They do it based on payback. For example, they build a factory because they expect more consumers will buy more products over the next 10 years. I spent most of my career evaluating such projects. Companies invest in countries where the public policy is not constantly changing.
3- “The question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent. When companies announce buyback programs they almost never refer to an upper limit of what they are willing to pay”.
Warren Buffet, 2016 letter to shareholders