Microsoft Makes Deal To Acquire LinkedIn for $26.2 Billion

In a bold and stunning move, Microsoft today announced it is acquiring the professional social network LinkedIn for $26.2 billion in cash and debt. Presuming the deal goes through, it will be by far the largest acquisition Microsoft has made in its 41-year history, adding a roster of 433 million registered users, of which 105 million unique visitors access their accounts at least once a month.

The deal, already approved by the board of directors of both companies, is expected to close by year's end. Besides the company's failed bid to acquire Yahoo for $44.6 billion back in 2008, it is three times the largest deal Microsoft has made (see Microsoft's largest deals here). By acquiring LinkedIn for a 50 percent premium over its closing price on Friday, Microsoft CEO is making his biggest bet yet in his bid to grow the company's business. Despite making huge strides in reshaping the company in the post-PC era, investors and analysts have shown impatience with the company's pace of growth. Microsoft's decision to acquire LinkedIn also demonstrates that the company is looking to play in a market it has largely avoided. While Microsoft acquired social networking technology with Yammer and invested $240 million in Facebook in 2007, this deal marks the first time Microsoft will try running a huge social network in a market dominated by Facebook, Twitter and Google, among others.

Microsoft said LinkedIn will remain independent, with CEO Jeff Weiner remaining CEO of the widely used professional social networking service. The deal raises questions as to what benefits adding a huge public social network will bring to Microsoft's existing portfolio. In a 90-second video created by Microsoft with Nadella and Weiner, the two gave brief statements on the rationale for the deal. Nadella said he has long contemplated acquiring LinkedIn, believing it fits in with the company's overall productivity and platforms focus.

"For sure I am a deep believer in productivity tools and communication tools because that's what empowers people to be able to be great at their job," Nadella said in the video. "But think about taking that, and connecting it with the professional network and really having the entirety of what is your professional life be enhanced, more empowered, where you're acquiring new skills and being more successful in your current job and finding a greater, bigger next job. That's that vision."

Weiner said during the discussions that led up to the deal both agreed the two companies were aligned in two key areas: purpose and structure. "Satya said time and time again 'You're going to have your independence, we have this shared sense of alignment, so let's dream big, let's think about what's possible.' That's going to be first principle."

The structure of keeping a company it has acquired like LinkedIn independent is not unusual for Microsoft, at least at the outset of those deals. When Microsoft acquired Yammer, Skype and Nokia's handset business, among the largest companies it had acquired previously, similar structures were established initially only for the companies to eventually become more integrated into the Microsoft corporate structure. That has had mixed results. Most of the core Yammer team is now gone and Microsoft has pared back most of the Nokia handset operations. Skype has been more successful so far and is evolving into a key component of Office 365.

Microsoft also appears to be betting that leveraging a large and established community of professional users will enable new opportunities. LinkedIn has had more than 45 billion quarterly member page views, which has grown 34 percent year-over-year. LinkedIn also hosts 7 million job listings, which has grown 101 percent over the past year, while 60 percent of its users access the service from mobile devices.

Initial reaction to the deal has been mostly that of surprise, with many sharing intrigue over the possibilities to link offerings such as Office 365, SharePoint, Dynamics and Azure in some way. One key task for LinkedIn will be to find ways to engage with many users who find the service has become a platform full of clutter and unwanted connection requests. "Satya Nadella makes bold final attempt to stop LinkedIn from e-mailing him," quipped author Matt Gemmell. Two hours later the comment had been retweeted 817 times.

Posted by Jeffrey Schwartz on 06/13/2016 at 9:10 AM