By Jay Greene
Microsoft Corp. used the largest acquisition in its history to
snap up LinkedIn Corp. for $26.2 billion, making a big bet that the
move can deliver a needed jolt to its own software offerings by
connecting them with the professional social network, which itself
has stumbled lately.
The deal is Microsoft Chief Executive Satya Nadella's latest
effort to revitalize his company, 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.
--Rolfe Winkler and Deepa Seetharaman contributed to this
article.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
June 13, 2016 19:11 ET (23:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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