LinkedIn shares exploded while Microsoft shares slipped after the two companies announced that they will be combining. Microsoft will pay $26.2 billion to acquire LinkedIn in an all-cash deal which slaps a value of $196 per share on the social network. Shares of LinkedIn initially surged by more than 60% before pulling back. As of this writing, the stock is up 48.23% at $194.30, while Microsoft shares are down 3.28% at $51.48.
Microsoft to buy LinkedIn
The purchase price represents a 50% premium to LinkedIn’s closing price on Friday.
Microsoft said LinkedIn Chief Executive Jeff Weiner will continue to head up the social network, which will keep its separate identity, independence and brand, after the acquisition. Weiner will report to Microsoft CEO Satya Nadella. According to CNBC, Weiner said in a memo to employees that not much will change after the acquisition, with the only exception being the positions of employees whose positions are related to maintaining the company’s, although they plan to help the employees find their “next play.”
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The transaction is expected to close sometime before the end of this year. Both companies’ boards unanimously approved it, and Microsoft will issue new debt to pay for most of it. Microsoft said it expects the acquisition to trim approximately 1% off its adjusted earnings per share for the rest of fiscal 2017.
The company will combine LinkedIn with its enterprise cloud services business, especially with Microsoft Office 365 and Dynamics, which is its customer relationship management service. LinkedIn’s earnings results will come under the results for Microsoft’s productivity and business processes segment.
LinkedIn fits with Microsoft’s vision
A combination of Microsoft and LinkedIn makes sense for both companies as they both have focused heavily on enterprises. Microsoft hasn’t had any success in social media yet, and LinkedIn’s position as a social network for professionals enables it to fill a gap that existed in the company’s enterprise services business. Its acquisition of Yammer a few years ago was essentially a failure, although it has managed to build out collaboration and communication platforms. Also Microsoft was an early investor into Facebook, so it clearly understood the potential that existed within social media from the industry’s earliest days.
For LinkedIn, putting Microsoft’s powerhouse behind it will enable it to better compete in what’s becoming a more and more competitive market. However, as TechCrunch notes, the social network isn’t one that’s fallen into hard times and now being ripped into pieces for spare parts. It’s quite a different story than Twitter, which Wall Street has been hoping will be acquired for quite some time.
Also the two companies share similar types of clients, which means that both of them will have a fresh outlet with fresh customer relationships to sell their products.
A great deal for LinkedIn and Microsoft
Wall Street was quick to praise the transaction. Ivan Feinseth, chief investment officer at investment firm Tigress Financial Partners, described LinkedIn as “the ultimate business social platform” on CNBC’s Squawk Box. He noted that professionals at all stages of their careers, from interns and college students to top executives, are on LinkedIn, so acquiring the social network is “a good way for Microsoft to expand in social platforms.” He also referenced the speculations that Salesforce might become an acquisition target for the company because of its strong position in cloud services, saying that a deal between the two could still happen at some point.
LinkedIn’s core Talent Solutions business is focused on recruitment advertising, which made up two-thirds of its $3 billion in revenues last year. The social network has a presence in more than 200 countries, and about 105 million people use its platform every month. In total, it has about 433 million registered users, and it has a strong mobile presence as well, with about 60% of its traffic coming via mobile devices, reports TechCrunch. It also has at least 7 million active job listings, making it one of the biggest collection of job listings in the world.
Microsoft and LinkedIn are planning to hold a conference call on the transaction at 11:45 a.m. Eastern, so we are sure to hear much more about it throughout the day.