Deal to help tech giant expand wider, with 35 million user base of LinkedIn in India
US software giant Microsoft, led by India-born CEO Satya Nadella, on Monday took the tech world by surprise by announcing a $26.2-billion, all-cash deal to acquire professional social platform LinkedIn for $196 per share, a premium of 49.5% to its Friday closing price.
The biggest-ever deal by Microsoft will combine the software giant's fast-growing cloud services business with an online network of 433 million professionals. The deal was unanimously approved by both companies' boards, and is expected to close by 2016-end.
Soon after the announcement, LinkedIn shares surged 47% to $193 in early New York Stock Exchange trading, while Microsoft's stock slipped 3.2%.
Jeff Weiner will stay on as LinkedIn CEO and will report to Nadella. The acquisition is still subject to approval by LinkedIn shareholders and regulators.
“The LinkedIn team has grown a fantastic business centered on connecting the world's professionals,” Nadella said in a statement. “Together, we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organisation on the planet.”
In a statement to LinkedIn employees, Weiner said: “Little is expected to change” and employees will have the same titles and managers. “It should be business as usual. We have the same mission and vision; we have the same culture and values; and I'm still the CEO of LinkedIn," he said.
Reid Hoffman, chairman of LinkedIn's board and the company's controlling shareholder, said the deal has his full support.
“I have always had a great admiration for LinkedIn,” Nadella said in a video on Microsoft's website. “I have been talking with Reid and Jeff for a while ... I have been thinking about this for a long time.”
Microsoft said it would issue new debt to fund its acquisition. The Redmond-headquartered software behemoth plans to speed up monetisation of LinkedIn by growing individual and organisational subscriptions as well as targeted advertising, it said.
Despite the rich premium paid by Microsoft, LinkedIn is selling for well below its peak of more than $270 per share in 2015, but a weak forecast earlier this year sent its shares tumbling amid slowing online ad revenue.
LinkedIn went public in 2011 at $45.
Sanjoy Sen, doctoral research scholar at the UK- based Aston Business School, believes that it would be naive to think that subscription revenue from platinum members of LinkedIn members attracted Microsoft to make this acquisition.
He expects Microsoft to exploit this opportunity by bringing its brand and offerings closer to professionals connected via LinkedIn through the power of social networking, which is bound to translate to additional sales revenues in the years to come.
The acquisition will help Microsoft expand wider, with 35 million user base of LinkedIn in India, the second-largest market after the US.
According to Sen, the acquisition has a strong link with India for two key reasons. “Firstly, the number of professionals based in India who are decision-makers or buyers of potential Microsoft products is significant, either working with Indian companies who are global or global organisations' Indian subsidiaries and captives. Secondly, the war for professional talent in the West will only put more professionals of Indian origin in leadership roles in large global organisations in future, thus helping to expand this virtuous cycle,” says Sen.
Raja Lahiri, Partner, Grant Thornton India LLP, said India is important in their scheme of things because it is a huge market and has enormous growth potential. “Overall, the power of social media is what drives the deal,” says Lahiri.
“It also elevates the positioning of the LinkedIn brand to attract more professionals, thus creating a virtuous cycle to further boost brand image and shareholder value,” Sen said.
In 2014, social networking major Facebook had acquired instant messaging platform WhatsApp in a $22-billion deal to consolidate its position in the social networking space.
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