Microsoft’s LinkedIn Buyout a Bold Stroke

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Microsoft will buy LinkedIn for $26.2 billion in its biggest-ever deal, a bold stroke by Microsoft CEO Satya Nadella in his efforts to make the venerable software company a major force in next-generation computing.

By connecting widely used software like Microsoft Word and PowerPoint with LinkedIn’s network of 433 million professionals, the combination could enable Microsoft to add a suite of sales, marketing and recruiting services to its core business products and potentially challenge cloud software rivals such as Salesforce.com.

Satya Nadella, CEO, Microsoft LinkedIn and Microsoft really share a mission of helping people work more efficiently. There is no better way to realise that mission than to connect the world’s professionals.

Microsoft Bought at a 50% Premium

The $196-per-share price tag represented a premium of almost 50 percent over LinkedIn’s stock market value as of Friday, but was still well below the social media company’s all-time high of $270. Analysts said the price was rich, and Microsoft’s stock closed down 2.7 percent at $50.14.

Still, there was cautious optimism that this could be one of the relatively few tech mega-mergers that works out well. “It’s a massive growth play for Microsoft,” said Forrester analyst Ted Schadler.

Slow Growth, High Valuations Prompted LinkedIn to Sell?

For LinkedIn, founded in 2002 and launched the following year by Reid Hoffman, one of Silicon Valley’s most-visible investors and entrepreneurs, the sale marks the end of a classic startup run: funding from top-tier venture capitalists, a long period of building the company and developing a revenue base, then a big initial public offering, followed by a roller-coaster stock price and finally an acquisition.

Jeff Weiner, CEO, LinkedInJust as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn’s network, now gives us a chance to also change the way the world works.

The company’s growth has slowed recently and investors have become far more cautious on the high valuations of many tech companies – both of which likely figured into LinkedIn’s decision to sell, analysts said.

Here’s what Satya Nadella had to say about Microsoft’s recent big-ticket purchase to his employees.

I’m excited to share that today Microsoft announced a deal to acquire LinkedIn. You can see how Jeff Weiner, the CEO of LinkedIn, and I envision the opportunity ahead in this public presentation.This deal brings together the world’s leading professional cloud with the world’s leading professional network. I have been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services.

It’s clear to me that the LinkedIn team has grown a fantastic business and an impressive network of more than 433 million professionals.Given this is the biggest acquisition for Microsoft since I became CEO, I wanted to share with you how I think about acquisitions overall. To start, I consider if an asset will expand our opportunity — specifically, does it expand our total addressable market? Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose?

The answer to all of those questions with LinkedIn is squarely yes. We are in pursuit of a common mission centered on empowering people and organizations. 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. Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics.

This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete. As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow.

And in turn, new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising.Jeff and I both believe we have a significant opportunity to accelerate LinkedIn’s growth and the value it brings to its members with Microsoft’s assets and scale. In fact, when Reid Hoffman, the founder of LinkedIn, and I spoke about the opportunity for us to come together, he called it a “re-founding” moment for LinkedIn and an opportunity to reach the mission the company set out on 13 years ago.The opportunity for Office 365 and Dynamics is just as profound. Over the past decade we have moved Office from a set of productivity tools to a cloud service across any platform and device. This deal is the next step forward for Office 365 and Dynamics as they connect to the world’s largest and most valuable professional network.

In essence, we can reinvent ways to make professionals more productive while at the same time reinventing selling, marketing and talent management business processes. I can’t wait to see what our teams dream up when we can begin working together once the deal closes, which we expect will happen this calendar year.A big part of this deal is accelerating LinkedIn’s growth. To that end, LinkedIn will retain its distinct brand and independence, as well as their culture which is very much aligned with ours. Jeff will continue to be CEO of LinkedIn, he’ll report to me and join our senior leadership team. In essence, what I’ve asked Jeff to do is manage LinkedIn with key performance metrics that accrue to our overall success.

He’ll decide from there what makes sense to integrate and what does not. We know that near term there will be no changes in who reports to whom so no reporting relationships at Microsoft will change in that regard. This approach is designed to keep the LinkedIn team focused on driving results while simultaneously partnering on product integration plans with the Office 365 and Dynamics teams. During the integration, we’ll pick key projects where we can go deep together that will ultimately result in new experiences for customers.

Kurt DelBene will lead the overall integration efforts at Microsoft in close partnership with Qi Lu and Scott Guthrie.I’m on the LinkedIn campus today in California and will host a call for investors at 8:45 a.m. PT with Jeff, Brad and Amy – please join if you can. Following that, I’ll then spend the day meeting with the LinkedIn team. Tomorrow, I’ll host a special Microsoft employee Q&A – I hope you can make it.So far, what I’ve learned about the LinkedIn team is how much our cultures share many of the same attributes.

We both care deeply about individual and collective growth, and find deep meaning in the work we do to make a difference in our world. Together we’ll do just that.

WhileI’m in northern California sharing our vision to empower professionals, the Xbox team is in southern California at E3 sharing our vision to empower gamers. I encourage you to check out the E3 press briefing, which starts at 9:30 a.m. Pacific Time.

Finally, if you’re not on LinkedIn, join up now and start using and learning more.

-Satya

(With Reuters inputs)

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