(Adds LinkedIn's revenue, details on Microsoft's automation
product Dynamics)
By Sarah McBride
June 13 (Reuters) - Microsoft Corp MSFT.O will buy
LinkedIn Corp (NYSE:LNKD) LNKD.N for $26.2 billion in its biggest-ever
deal, a bold stroke by Microsoft CEO Satya Nadella in his
efforts to make the venerable software company a major force in
next-generation computing.
By connecting widely used software like Microsoft Word and
PowerPoint with LinkedIn's network of 433 million professionals,
the combination could enable Microsoft to add a suite of sales,
marketing and recruiting services to its core business products
and potentially challenge cloud software rivals such as
Salesforce.com Inc (NYSE:CRM). CRM.N .
"LinkedIn and Microsoft really share a mission" of helping
people work more efficiently, said Microsoft CEO Nadella in a
conference call with analysts. "There is no better way to
realize that mission than to connect the world's professionals."
The $196-per-share price tag represented a premium of almost
50 percent over LinkedIn's stock market value as of Friday, but
was still well below the social media company's all-time high of
$270. Analysts said the price was rich, and Microsoft's stock
closed down 2.7 percent at $50.14.
Still, there was cautious optimism that this could be one of
the relatively few tech mega-mergers that works out well. "It's
a massive growth play for Microsoft," said Forrester analyst Ted
Schadler.
The deal may also help spur further mergers and acquisitions
in the tech sector, where a broad correction is bringing down
the prices of public and private companies even as a handful of
major players sit on large cash piles.
For LinkedIn, founded in 2002 and launched the following
year by Reid Hoffman, one of Silicon Valley's most-visible
investors and entrepreneurs, the sale marks the end of a classic
startup run: funding from top-tier venture capitalists, a long
period of building the company and developing a revenue base,
then a big initial public offering, followed by a roller-coaster
stock price and finally an acquisition.
The company makes most of its $3 billion in annual revenue
from job hunters and recruiters who pay a monthly fee to post
resumes and connect with people on what's often known as the
social network for business.
The company's growth has slowed recently and investors have
become far more cautious on the high valuations of many tech
companies - both of which likely figured into LinkedIn's
decision to sell, analysts said.
For Microsoft, the LinkedIn deal is a chance to reverse a
terrible track record with acquisitions, including paying $9.4
billion for phone maker Nokia (HE:NOKIA) in 2014 and $6.3 billion for ad
business aQuantive in 2007. In 2012, it wrote down its aQuantive
acquisition by $6.2 billion, and its cumulative writedowns for
Nokia total $8.55 billion.
It also paid $1.2 billion for business network Yammer in
2012 and $8.5 billion for video-calling tool Skype in 2011.
The LinkedIn acquisition could help Microsoft play to its
strengths in analytics, machine learning and artificial
intelligence, Nadella said on the investor call. LinkedIn and
Microsoft both have enormous amount of data about their
customers that can potentially be mined to offer automated
suggestions and other features that make business processes
quicker and simpler.
Microsoft noted that the deal brings in a big new customer
base: after adding in LinkedIn, the total potential market size
of Microsoft's productivity and business-process segment sits at
$315 billion, up from $200 billion without LinkedIn.
Microsoft Chief Financial Officer Amy Hood said the deal
would be financed mainly with debt, a way for the cash-rich
company to reduce its tax bill. The company has $105 billion in
cash and other liquid assets. Moody's said it was reviewing
Microsoft's rare AAA debt rating for a possible downgrade.
LinkedIn CEO Jeff Weiner will remain with the company, which
will be operated as a separate unit and retain its name.
CHASING GROWTH
Nadella has been trying to reinvigorate Microsoft since
taking over the lumbering giant two years ago, and has helped
build more credibility around the company's efforts in areas
such as cloud-based services. When he took the top job in
February 2014, the company's share price was $34.20; early
Monday afternoon, it was trading around $50.
With LinkedIn, Nadella is solidifying Microsoft's focus on
the business market, where it has retained a much stronger
position than it has in the smartphone-centric consumer
technology business.
In touting the synergies of the deal, Nadella gave an
example of a customer walking into a meeting scheduled on a
Microsoft Outlook calendar integrated with LinkedIn. That person
might receive notification that one of the people in the meeting
went to college with a colleague, enabling another level of
connection.
"The future of productivity is around people, identity and
data and the relationships between the them," said Matt
McIlwain, a portfolio manager at Madrona Ventures.
"Microsoft is buying LinkedIn for the opportunity to
leverage these capabilities and combine them with Microsoft's
strong but complementary assets in those three areas."
The strategy in many ways is similar to that of
Salesforce.com, whose CEO, Marc Benioff, just last month told
investors he believed artificial intelligence and machine
learning would drive growth at his company.
Salesforce.com had once been considered a possible Microsoft
acquisition target. Microsoft has its own salesforce automation
product, called Dynamics, and integration with LinkedIn could
help it become a much more formidable competitor in that market.
Despite Microsoft's weak track record in M&A, the one prior
major deal on Nadella's watch - the $2.5 billion purchase of
video game maker Minecraft in 2014 - is generally considered a
success, complementing Microsoft's work on augmented-reality
projects such as the HoloLens headset.
Weiner of LinkedIn said on a call with Reuters that he met
Nadella two years ago at the Microsoft CEO Summit - a meeting of
top executives at the software company's campus near Seattle -
and started serious talks about an acquisition in February. That
was shortly after LinkedIn's stock fell by 40 percent following
a weak earnings report.
TWITTER NEXT?
Weiner added LinkedIn would remain its own entity in the way
that YouTube is relatively independent from parent Alphabet Inc
GOOGL.O , or Instagram from parent Facebook Inc FB.O . That
could ease concerns that users might have about Microsoft being
in control of their professional information - though the kind
of integration Nadella cited suggests that LinkedIn might not be
its own entity forever.
Monday's deal raised investors' hopes that another social
media company, Twitter Inc TWTR.N , could be the next
acquisition target, sending that company's shares up almost 4
percent.
The Microsoft-LinkedIn deal, which won the unanimous support
of both boards, is expected to close this year, the companies
said.
After the deal, which will require approval from regulators
in the United States, the European Union, Canada and Brazil,
LinkedIn will become part of Microsoft's productivity and
business processes unit, the companies said. That unit generated
$6.52 billion of Microsoft's $20.53 billion in revenue last
quarter.
Microsoft's financial adviser was Morgan Stanley (NYSE:MS) and
LinkedIn's financial adviser was Allen & Company LLC and
Qatalyst Partners, founded by Silicon Valley dealmaker Frank
Quattrone.
Microsoft's legal adviser was Simpson Thacher & Bartlett LLP
and Wilson Sonsini Goodrich & Rosati and Professional Corp
advised LinkedIn.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
LinkedIn CEO comment to employees https://www.linkedin.com/pulse/linkedin-microsoft-changing-way-world-works-jeff-weiner?articleId=6148085241467662336#comments-6148085241467662336&trk=prof-post
Nadella's mail to Microsoft employees http://news.microsoft.com/2016/06/13/satya-nadella-email-to-employees-on-acquisition-of-linkedin/#sm.00041givi1dp1copu841ur0ihvjoa
Microsoft, LinkedIn merger announcement
BREAKINGVIEWS-Microsoft's CEO abandons prudence with LinkedIn
LinkedIn to buy online education company lynda.com for $1.5 bln
GRAPHIC - Microsoft offer for LinkedIn http://tmsnrt.rs/1VUSNzj
Microsoft eyes debt to finance LinkedIn buy - IFR News
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>