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Tuesday, June 14, 2016
Microsoft to Acquire LinkedIn for $26.2 Billion
Deal is for $196 per LinkedIn share, a 50% premium to Friday’s close
Microsoft Corp. snapped up LinkedIn Corp. for $26.2 billion in the largest acquisition in its history, betting the professional social network can rev up the tech titan’s software offerings despite recent struggles by both companies.
The deal is Chief Executive Satya Nadella’s latest effort to revitalize Microsoft, which was viewed not long ago as left behind by shifts in technology. Mr. Nadella hopes the deal will open new horizons for Microsoft’s Office suite as well as LinkedIn, both of which have saturated their markets, and generally bolster Microsoft’s revenue and competitive position.
Mr. Nadella said today’s work is split between tools workers use to get their jobs done, such as Microsoft’s Office programs, and professional networks that connect workers. The deal, he said, aims to weave those two pieces together.
“It’s really the coming together of the professional cloud and the professional network,” Mr. Nadella said in an interview on Monday.
For instance, connecting Office directly to LinkedIn could help attendees of meetings learn more about one another directly from invitations in their calendars.
Sales representatives using Microsoft’s Dynamics software for managing customer relationships could pick up useful tidbits of background on potential customers from LinkedIn data.
Microsoft also sees opportunities in Lynda.com, a channel for training videos that LinkedIn bought for $1.5 billion last year. Microsoft will be able to offer Lynda’s videos inside its own software, such as Excel spreadsheets.
Mr. Nadella also talked about giving its Cortana digital assistant access to data from LinkedIn.
As for LinkedIn, the deal offers hope to renew decelerating growth as well as an exit for shareholders after the stock tumbled from a peak of $269 in February 2015 to as low as $101.11 last February.
Microsoft will pay $196 per LinkedIn share, a 50% premium to the social network’s closing price on Friday. Both boards approved the deal, and Reid Hoffman, LinkedIn’s chairman and controlling shareholder, supports the transaction. LinkedIn Chief Executive Jeff Weiner will keep his current job when the deal closes, which the companies expect to happen by the end of the year.
The tie-up will also test Microsoft’s ability to meld a large acquisition with its own operations. The Redmond, Wash.-based company has struggled to integrate previous purchases including Nokia Corp.’s handset business and aQuantive Inc., costing shareholders billions of dollars in the process.
The deal dwarfs other Microsoft acquisitions. Its next largest deal, buying the Nokia handset business, led to Microsoft taking charges that exceeded the $9.4 billion price. That deal was orchestrated in 2014 by Microsoft’s previous chief executive, Steve Ballmer.
Microsoft’s prior efforts at weaving social networking into its productivity software haven’t caught fire. In 2012, Microsoft bought workplace chat service Yammer Inc. for $1.2 billion, but has seen rival products, such as Slack, gain momentum.
“Sadly, history has shown [synergies] are very difficult to realize when two big companies combine, especially to the extent LinkedIn is remaining an independent fiefdom within the Microsoft empire,” said Mitch Kapor,founder of Lotus Development Corp. and partner of venture firm Kapor Capital.
Some business leaders look forward to benefits from the tie-up. Tech companies and their customers “are looking for ways to get even more out of social media,” said Steve Phillips,chief information officer of Avnet Inc., an electronics supplier that uses Microsoft products including Office 365.
Mr. Nadella and Mr. Weiner met at a Microsoft gathering of CEOs a few years ago, and the pair talked earlier this year about working more closely, according to a person familiar with the matter. That person said there was “such a mind-meld” during those discussions that the conversation moved toward the possibility of an acquisition. Mr. Hoffman was also “actively” part of the takeover talks, which lasted a few months, the person said.
Another source said that Messrs. Nadella, Weiner and Hoffman and Microsoft exec Qi Lu,who worked with Mr. Weiner at Yahoo Inc., met for dinner in April to discuss potential scenarios. Microsoft and LinkedIn leaders dined at Mr. Hoffman’s house Sunday night, the person said.
The deal highlights Mr. Nadella’s bid to reshape Microsoft, a little more than two years after taking the helm. Mr. Nadella, who rose through Microsoft’s ranks in its business applications and server groups, has focused much of the company’s efforts on products and services for corporate customers.
As CEO, he has extended Microsoft’s software to platforms that it doesn’t control, including Android mobile phones and the Linux desktop operating system. And he has pushed to connect Microsoft’s products to data sources that can provide customers with timely, useful information, and to develop services intended to anticipate information users want and actions they’ll take.
Growth has been a challenge for both Office and LinkedIn. In the quarter that ended March 31, revenue at Microsoft’s productivity and business processes unit, which includes Office, grew by 1% to $6.5 billion. Office users number 1.2 billion, the company said.
Growth at LinkedIn, which in the first quarter claimed 105.5 million monthly active users of its web and mobile apps, has decelerated in the past two years. UBS Securities LLC analyst Brent Thill estimates that LinkedIn revenue will climb a bit more than 25% in 2016, down from more 35% growth in 2015 and more 45% growth in 2014.
Microsoft said it expects LinkedIn, which will be part of its productivity and business processes segment, will have a minimal negative impact—about 1%—on adjusted earnings for its fiscal 2017 and 2018 years. The deal is expected to add to Microsoft’s per-share earnings in 2019.
Following news of the acquisition, Moody’s Investors Service said it would review Microsoft’s triple-A credit rating for a potential downgrade. Moody’s said the only companies that hold its triple-A rating, which indicates pristine credit quality, are Microsoft, Johnson & Johnson and Exxon Mobil Corp.
Morgan Stanley served as Microsoft’s financial adviser to Microsoft, and LinkedIn was represented by Qatalyst Partners and Allen & Co.
Analysts said a competing bid from another tech company is unlikely given the size of the transaction. Credit Suisse analyst Stephen Ju also cited “the lack of clear strategic fit” between LinkedIn and other major tech companies.