LNKD Linkedin Corp. Class A

By Anne Steele 

Microsoft Corp. said Monday it has reached a deal to buy LinkedIn Corp., the professional social-networking company, for $26.2 billion in cash.

Microsoft will pay $196 per LinkedIn share, a 50% premium to LinkedIn's closing price on Friday.

In a blog post, Microsoft said LinkedIn will "retain its distinct brand, culture and independence," with Chief Executive Jeff Weiner remaining at the helm, reporting to Microsoft CEO Satya Nadella.

The deal is expected to close within the year.

Shares of LinkedIn, which had dropped 42% so far this year through Friday's close, jumped 47% to $193.25 in early trading. Microsoft shares fell 4.2%.

The companies see cost savings of about $150 million annually by 2018. LinkedIn would be required to pay $725 million breakup fee if it backs out of the deal.

"Today there is no one source of truth for an individual profile -- the data is often scattered across many endpoints often with outdated or incomplete information," Microsoft said in an investor presentation. "In the future, a professional's profile will be unified and the right data at the right time will surface in an app, whether Outlook, Skype, Office, or elsewhere."

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.

Mr. Weiner, in a letter to employees posted online, said the acquisition would help LinkedIn weather intensifying competition in the tech landscape.

"Imagine a world where we're no longer looking up at Tech Titans such as Apple, Google, Microsoft, Amazon, and Facebook, and wondering what it would be like to operate at their extraordinary scale -- because we're one of them," Mr. Weiner said. "With today's news, we won't need to imagine any of it because it's now our reality."

Mr. Weiner said "little is expected to change" for LinkedIn employees, except for those who jobs are entirely focused on maintaining LinkedIn's status as a publicly traded company. "We'll be helping you find your next play," Mr. Weiner said of those employees.

LinkedIn went public in May 2011 at $45 a share in the biggest internet IPO since Google Inc.'s debut in 2004, and its stock more than doubled on its first day of trading.

Shares peaked around $270 in February 2015 but have since lost about half their value as the company forecast a much weaker-than-expected 2016 as it shifts gears on its advertising strategy. The tepid outlook, given in February of this year, reflected a slowdown in its higher-margin online sales business, economic pressure overseas and its decision to shelve an advertising product launched last year, executives and analysts said.

The February forecast triggered a selloff that cut its value nearly in half, though the company filed an optimistic quarterly report in April.

About two-thirds of LinkedIn's revenue comes from its talent-solutions division, which helps corporate recruiters identify job candidates, in contrast to other social networks that primarily rely on advertising revenue. The unit generated $558 million in revenue in the first quarter, up 41% from a year ago.

Mr. Nadella pointed to LinkedIn's professional-focused business as a good complement to its Office products.

"Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics," he said.

Microsoft, a rare tech stalwart that has appeared to be making a deft transition to the new world of web-based, on-demand computing, faltered in the most recent quarter as the growth of its cloud business slowed. One of the big growth engines for Microsoft has been its Office 365, the cloud version of its productivity software suite.

Microsoft has made a number of big acquisitions in recent years. Among them was its disastrous $9.4 billion buy of Nokia Corp.'s mobile phone business, most of which has been written off. The company also spent $8.5 billion in 2011 to buy Skype SARL, the provider of free online video and voice chats, and $2.5 billion in 2014 for Mojang AB, the maker of the "Minecraft" videogame.

LinkedIn reported $2.99 billion in revenue for 2015, a 35% increase from a year earlier, while its loss widened to $164.8 million from $15.3 million on a surge in sales and marketing and product development costs.

Microsoft, meanwhile, logged a 7.8% increase in revenue to $93.6 billion for its most recent fiscal year, which ended last June. Profit, however, dropped 45% to $12.2 billion amid restructuring charges.

Lauren Pollock, Joshua Jamerson and Austen Hufford contributed to this article

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

June 13, 2016 09:58 ET (13:58 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.