The announcement Monday by Microsoft Corporation (NASDAQ:MSFTA) that it would acquire LinkedIn Corporation (:LNKDN/A) for $26 billion and change, represents the largest M&A deal in Microsoft’s history.
It works out to $196 per LindedIn share, a 50% premium on last Friday’s close. That news represents the “what.” Even more interesting is the “why.” But,first, a little background.
Shaky Track Record
This proposed acquisition, which has been agreed to by both companies isn’t just big. It’s also risky – especially for Microsoft, a company that hasn’t exactly “hit it out of the park” with previous buyouts such as the $6.3 billion buyout of online display advertising company, aQuantive, which turned into a $6.2 billion write-down.
Another 2007 Microsoft miss was the relatively cheap $800 million acquisition of Tellme Networks. The company delivered Web searches for stock prices and weather reports via the telephone. And yes, the entire concept became irrelevant with the rise of smartphones and mobile Web. So there’s that.
Given a less-than-steller M&A history, the question on Wall Street’s mind is "why make such a risky move?”
Microsoft and LinkedIn summed it up by saying there was much to be gained by merging LinkedIn’s 433 million members with Microsoft’s cloud structure. One possible advantage for LinkedIn is a refresh to a stock that has been down this year. Access to LinkedIn’s member network could provide the boost Microsoft needs to get more people using its cloud apps like Office 365, Skype and Cortana.
What To Expect
Microsoft CEO Satya Nadella and LindkedIn CEO Jeff Weiner spoke with investors and noted that LinkedIn could provide the missing social-network piece from Microsoft’s productivity software.
On the flip side, Microsoft Office and Outlook could make updating your LinkedIn profile much easier, according to the CEOs.
One unique possibility was the use of information from LinkedIn profiles in Microsoft products like Word, Excel and Outlook to identify people being mentioned or participating in a discussion. Forbes called it a potential “single source of truth.”
Cortana To The Rescue
Microsoft’s automated speech assistant, Cortana, is even envisioned as a “coach” set to provide you with background information and even news tidbits that might be relevant to the person you are about to meet.
This could include such things as noting connections – schools you both attended, hobbies, and so forth to make it appear that you had taken the time to get to know the person ahead of the meeting.
Related: WHAT MIGHT BE BETTER THAN FACEBOOK?
Chances For Success
Clearly there are benefits to be gained for both companies. Under a best case scenario, Microsoft plus LinkedIn could equal an amazing business software package with few rivals. Still skeptics remain.
There’s always a chance a rival bidder could emerge for LinkedIn. LinkedIn could stumble even more than it has so far this year. Barron’s Roger McNamee, a well-known and respected tech investor questioned whether LinkedIn users would buy into the Office 365 connection saying, “It’s really simple. Big deals don’t work.”