Analysis: Microsoft surprises market with LinkedIn acquisition

It may have been widely known that Microsoft was back on the acquisition trail but few if any, investors seriously expected the tech giant to go after LinkedIn.

While Microsoft may have been actively picking up companies left, right and centre of late, the last big name it was associated with was Salesforce. The companies held talks last year about a possible deal but that fell apart when the two sides couldn't agree on a price. While many on Wall Street still held out hope for a possible takeover of Salesforce, Microsoft busied itself buying up smaller fry with most of its recent acquisitions being relatively unknown outside of the tech community.

Microsoft missed out on the social networking revolution and with start-ups such as Slack making waves in the collaborative space, a move to expand its reach in the professional sector via LinkedIn makes sense.

The company has previous in this regard, having acquired the corporate-friendly community-building tool Yammer for $1.2 billion in 2012, although it has failed to capitalise on that purchase. With the LinkedIn deal, Microsoft now has access to a network of more than 433 million professionals and a new opportunity to get it right.

Microsoft reportedly started talking with LinkedIn about a possible deal in January, shortly before the networking site reported a lower-than-expected revenue forecast that caused its stock to plummet. The talks got serious once Microsoft chief executive Satya Nadella mentioned his vision for the structure, telling LinkedIn CEO Jeff Weiner that LinkedIn could continue to operate independently, like Facebook's WhatsApp or Google's YouTube.

“We are in pursuit of a common mission centered on empowering people and organisations. Along with the new growth in our Office 365 commercial and Dynamics businesses this deal is key to our bold ambition to reinvent productivity and business processes,” Mr Nadella said in a memo to staff outlining the new deal.

“This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete. As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow,” he added.

While many onlookers will be intrigued as to how LinkedIn will fit within Microsoft, those who have invested in the professional network are likely to be more than happy with the deal. Given that shares in LinkedIn have fallen 40 per cent over the last year, there will be huge relief among those who have previously taken a punt on the company.

The offer of $196 a share represents a 50 per cent premium to LinkedIn’s closing price on Friday and is inclusive of the professional networking website’s net cash.

For Weiner the deal is obviously about more than share price.

“Realising LinkedIn’s full potential to truly change the way the world works by partnering with Microsoft to innovate on solutions within the enterprise that are ripest for disruption,” he wrote in a memo to staff.

LinkedIn may not be the only company to benefit from the deal though. Shares of Twitter rose by more than 8 per cent in early morning trading in New York after news of the acquisition emerged. With many investors hoping that the deal may signal a resurgence of tech-related M&A's, the troubled social network is likely to be a possible target.