Microsoft Corporation Real Winner in LinkedIn Corp Deal
Microsoft Corporation (NASDAQ:MSFT) has bought itself the social network for professionals; LinkedIn Corp (NYSE:LNKD) goes to Microsoft. With a flash deal, the Redmond, Washington computer giant has acquired control of LinkedIn for $196.00 per share, or a total of $26.2 billion.
This is Microsoft’s single largest acquisition. It assures owners of LinkedIn stock a premium of 50% over its closing price on the Friday prior to the deal. As for Microsoft stock, the deal opens it to bullish possibilities, even if many shareholders, judging by their overall reaction, don’t seem to think so.
The deal is clearly great for LinkedIn shareholders. But, what do those with Microsoft stock get out of it?
There seems to be some pessimism, given that Microsoft stock is trading down 2.93% (at the time of this writing). Perhaps Microsoft has not done enough to promote the benefits that LinkedIn can generate for MSFT stockholders?
The implication for Microsoft is that the new group’s strategy will favor software development, setting aside the difficult task of competing with Apple on hardware and software.
First of all, LinkedIn will maintain its own distinctive brand, culture, and independence, according to Microsoft and LinkedIn’s CEO, Jeff Weiner, who will remain in charge of the company he founded. The transaction will close before the end of 2016. Microsoft will fund the transaction primarily through the issuance of new debt. (Source: “LinkedIn CEO: Here’s Why I Sold the Company to Microsoft,” Time, June 13, 2016.)
“The Microsoft that has evolved under Satya’s leadership is a more agile, innovative, open and purpose-driven company,” said Weiner. (Source: Ibid.)
Indeed, Microsoft has ambitious plans for how to keep LinkedIn independent. Microsoft wants LinkedIn to continue to develop its brand as the premiere web site for professional resources. The strategy will be to link Microsoft’s popular software programs to LinkedIn’s growth and success.
The best way to understand how Microsoft plans to benefit from its new acquisition is that LinkedIn has changed the way people around the world connect to job opportunities. Microsoft can combine this power with its cloud technology to take what LinkedIn started to another level. It will not only change the way people find work; it will also change the way they work.
Microsoft CEO Satya Nadella said that the next direction for Microsoft’s “Office” software is “to combine with LinkedIn’s network. For example, LinkedIn’s newsfeed could offer you an article based on a project you’re working on in Microsoft Word or PowerPoint, or Microsoft Office could suggest an expert source for you on LinkedIn to help you complete an assignment.” (Source: “Why Microsoft’s $26.2 Billion LinkedIn Acquisition Is Good News For Twitter,” Vanity Fair, June 13, 2016.)
In other words, Microsoft will use LinkedIn as one of the main weapons in its arsenal to compete against Google, a.k.a. Alphabet Inc (NASDAQ:GOOG).
Microsoft’s first task will be to revive the fortunes of LinkedIn, which have disappointed investors and markets as of late due to increased competition. Nevertheless, LinkedIn may also have suffered from a labor market recovery that has failed to match expectations.
Perhaps the best reason why Microsoft shareholders should welcome the LinkedIn acquisition is that the former company has had success with social media companies.
It has had less success with hardware companies. For example, Microsoft bought Nokia in 2013. By most standards, that turned out to be a bad deal. It was an attempt to compete with Google and Apple, but by choosing hardware, Microsoft picked the wrong side of the stick. By offering compatible software and social media solutions, LinkedIn can enhance what Microsoft has done best, creating a whole new range of unique products.
Indeed, by acquiring LinkedIn, Microsoft will not only compete with Google, but it will also have to contend with Facebook, having the potential to attract even more users. In that respect, Microsoft’s purchase of Skype in 2011 has proven highly successful. It has allowed Microsoft to gain users worldwide.
Imagine what Microsoft could do if it finds a way to combine its “Cloud” services, Office software, LinkedIn, and Skype. No other company has access to such a powerful cocktail of social media and software—which can work on any hardware.
Some Microsoft shareholders fear that the LinkedIn acquisition is a distraction from Microsoft’s lukewarm performance. However, the move is a very interesting one and history suggests social media acquisitions are good for Microsoft stock.