Microsoft adds LinkedIn to its network in $26.2bn takeover

Microsoft has agreed to buy LinkedIn in a $196 per share all-cash takeover that values the professional social network at $26.2bn.

The software giant said it expected the deal, which is to be funded by issuing new debt, would close this calendar year subject to approval by LinkedIn’s shareholders and regulatory authorities.

Microsoft said that LinkedIn will retain its "distinct brand, culture and independence", with current chief executive officer Jeff Weiner remaining in place and reporting to Microsoft boss Satya Nadella.

On the closing of the deal, the Microsoft expects LinkedIn’s acquisition to create a minimal dilution of around 1% to earnings per share for the remainder of fiscal year 2017 and for fiscal year 2018, before becoming accretive to EPS in the 2019 financial year "or less than two years post-closing".

“The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” Nadella said.

“Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.”

Microsoft, which supplied a video from Nadella and Weiner describing the rationale for the deal, said it still intends to complete its existing $40bn share buyback authorization by the end of the current calendar year.

Morgan Stanley is acting as financial advisor to Microsoft, with Qatalyst Partners and Allen & Company advising LinkedIn.

LinkedIn co-founder and controlling shareholder Reid Hoffman said: “Today is a re-founding moment for LinkedIn. I see incredible opportunity for our members and customers and look forward to supporting this new and combined business.

“I fully support this transaction and the board’s decision to pursue it, and will vote my shares in accordance with their recommendation on it.”

A good deal?

LinkedIn shares closed at just over $131 last week, down from a peak last year of nearer $270 with a sell-off in recent months after it issued a weak outlook in its February earnings call.

Analyst Augustin Eden at Accendo Markets said the deal would be likely to result in a bit of an exodus from Microsoft.

"Shares in Microsoft were understandably suspended from trading in the lead-up to this bit of news, given that the traditional reaction to such an announcement often involves a shareholder exodus from the predator. With this deal lightening Microsoft’s coffers to the tune of $26bn, make that an exodus of biblical proportions.

"However it’s perhaps the attractiveness of this deal to the merger arbitrage hedge funds that’s set to have the biggest impact on both companies. With that massive 50% premium, this could be the pairs trade of the decade."

Analyst Naeem Aslam at Think Forex said Microsoft had got itself a good deal.

"Linked is worth a lot more with Microsoft because the firm was well behind the curve when it comes to CRM. Linked tried to develop this, but they never did a good job there at all, and with Microsoft behind them now with all of of their cloud infrastructure, it will be a game changer."

He said the software giant had been eyeing a big deal for some time but nothing had progressed.

Suggesting the deal could presage a tech takeover spree, he said Twitter and Yell could be the next companies targeted.

Jasper Lawler at CMC noted that Microsoft will be paying a colossal 91 times forward earnings, "which needs some impressive growth in LinkedIn or cross-over benefits to Microsoft’s services to justify".

"Microsoft is increasingly moving into the cloud and this acquisition of LinkedIn is the next stage of that evolution. In this deal, Microsoft is acquiring the one thing that many of the new tech companies have and old-tech don’t; users. Microsoft will be hoping to lean on LinkedIn’s business users for its enterprise business.LinkedIn users can expected some options to integrate with Office 365 in the not-too-distant future."

Shares in LinkedIn surged 48% while Microsoft's were down 4%. CRM sector rival Salesforce was down slightly.