Microsoft surprises market by swooping for LinkedIn

Microsoft has acquired LinkedIn for $26.2 billion (€23.26 billion) in cash in what is its largest acquisition to date and the biggest technology-related deal so far this year.

The offer of $196 a share represents a 50 per cent premium to LinkedIn’s closing price of $131 on Friday and is inclusive of the professional networking website’s net cash.

Details of the deal were announced on Monday with shares in LinkedIn, which has more than 400 million members globally, jumping 49 per cent on the news. Microsoft’s stock declined by 4 per cent.

Under the deal, LinkedIn will retain its brand, culture and independence and Jeff Weiner will remain chief executive of the company. Founder Reid Hoffman is also staying on as board chairman.

LinkedIn’s shares have fallen 40 per cent over the past year, and plummeted when the company lowered its outlook for professional subscription services revenues.

Although LinkedIn has been unprofitable for the last two years, Microsoft said it expected it would be accretive to earnings by 2019.

The price paid for the professional networking company far outweighs that previously paid by Microsoft for other big name acquisitions such as Skype. Microsoft is paying about 91 times LinkedIn’s Ebitda in the past year, making it one of the priciest deals of 2016 on that basis.

"This deal brings together the world's leading professional cloud with the world's leading professional network," Microsoft chief executive Satya Nadella told staff in a memo.

“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,” he added.

Microsoft employs more than 1,200 full-time employees and 700 contract staff in Ireland while LinkedIn has more than 1,000 employees.

Irish location

"This is a positive move for the two companies. For Microsoft, the acquisition provides an excellent mechanism to expand its business social platforms," said Paul Sweetman, director of the Ibec-affiliated organisations ICT Ireland and the Irish Software Association.

“Given that Ireland is an important location for Microsoft and LinkedIn, Ireland will both contribute to and benefit from the growth which will come, where the sum of the companies will be greater than the parts,” he added.

Microsoft, which has acquired more than 180 companies since it was first established, was known to be actively back on the acquisition trail after a few relatively quiet years. It was recently linked with a deal to buy Salesforce although the takeover collapsed when both sides failed to agree on a price.

While many analysts saw the LinkedIn deal as being logical given Microsoft’s focus on the corporate world, many expressed surprise over the high price being paid for the networking company.

"This move gives Microsoft access to the biggest professional social network at present. That's a valuable asset that can be deeply integrated with a number of Microsoft assets such as Office 365, Exchange and Outlook. That said, Microsoft has stated that the company will continue to operate as an independent business so we'll have to see how deeply the integration occurs," said CCS Insight analyst Ben Wood.

Benedict Evans, partner at well-known venture capital firm Andreessen Horowitz, tweeted that the deal was part of Microsoft's attempts to recreate "the connective tissue for enterprises". However, he said LinkedIn would "take a lot of fixing".

LinkedIn founder Reid Hoffman, who set-up the company in December 2002, has seen his net worth jump by an estimated $800 million following the deal.

“Today is a re-founding moment for LinkedIn,” he said. “I see incredible opportunity for our members and customers and look forward to supporting this new and combined business.”

Mr Weiner’s 408,000 shares in the company are now worth an estimated $78 million.

– (Additional reporting: Agencies)