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Microsoft surprise buys LinkedIn for US$26.2 billion — but why?

By Alvin Soon - on 14 Jun 2016, 10:55am

Microsoft surprise buys LinkedIn for US$26.2 billion — but why?

Image source: Microsoft

Update: Read Microsoft CEO Satya Nadella’s internal memos to staff on the LinkedIn acquisition.

Microsoft has just surprised everybody by buying LinkedIn at US$196 per share, a 50 percent premium on LinkedIn’s US$131 closing price last Friday. The total cash amount works out to a valuation of US$26.2 billion, and is Microsoft’s largest acquisition ever. For comparison, buying Nokia in 2014 cost Microsoft US$7.2 billion.

LinkedIn will retain its brand, and Jeff Weiner will remain CEO of the company.

 

Why is Microsoft buying LinkedIn?

The big question is, why? In a nutshell, Microsoft sees the two companies having “a common mission centered on empowering people and organizations,” and a combined Microsoft/LinkedIn will help them in “connecting the professional world” to create “more connected, intelligent and productive experiences.”

Translated: There are more than one billion Microsoft users in the world, mostly using Microsoft apps like Office to get work done. LinkedIn has more than 433 million members and is all the only social network that’s all about work. Integrate the two, and Microsoft finally has a social network, which is something neither Apple nor Google has.

Microsoft CEO Satya Nadella lays it out as much in an internal memo about the LinkedIn acquisition, describing how LinkedIn might work in Office 365, by suggesting experts to connect with on tasks and personalized newsfeed based on the projects you’re working on. The acquisition seems to be very much in line with Nadella’s overarching “mobile-first, cloud-first” strategy for Microsoft.

Image source: Microsoft

 

This deal could be the lifeline LinkedIn was looking for

The deal definitely works out for LinkedIn, which has had its share of problems. In February, LinkedIn shares lost over half their value in little more than a month, because of poor growth and bleak forecasts over its future income.

LinkedIn’s active user base is also lower than competing social networks. According to Professor Mark Skilton, of Warwick Business School, “LinkedIn has grown a user base of 106 million active users, but compared to 310 million active Twitter users and the mighty 1.65 billion Facebook monthly users, LinkedIn has never managed to grow its commercial services in what could have been a strong enterprise market.”

However, while a large cash infusion is good news for LinkedIn investors, it remains to be seen if an integration with Microsoft could enhance LinkedIn’s business model, and inject the user growth and revenue streams it needs to make the deal worthwhile.

The deal is expected to close this calendar year, pending shareholders and regulatory approval.

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