Microsoft Corporation will buy LinkedIn Corp for USD 26.2 billion in its biggest-ever deal announced today, giving the world's biggest software provider access to online network of 433 million professionals.
Microsoft will pay USD 196 per share in an all-cash transaction, a 49.5 per cent premium to LinkedIn's closing price on Friday.
While LinkedIn will retain its brand, culture and independence, Microsoft will speed up the monetisation by growing individual and organisation subscriptions as well as through targeted advertising.
Jeff Weiner will remain chief executive of LinkedIn and report to Microsoft CEO Satya Nadella. Reid Hoffman, chairman of LinkedIn's board and the company's controlling shareholder, said the deal has his full support.
Microsoft is looking at combining LinkedIn services to make workers more productive by revealing connections and data that might otherwise take additional steps to find. That could increase the value of Microsoft's Office to customers.
In India, LinkedIn has about 650 employees and R&D operations in Bengaluru.
LinkedIn started out in the living room of co-founder Hoffman in 2002 and was officially launched on May 5 in 2003.
It has seen 19 per cent growth year-on-year to more than 433 million members worldwide while quarterly member page views rose 34 per cent to over 45 billion.
Over 92 million users came from Asia and the Pacific region.
In the first quarter of 2016, LinkedIn's revenue increased 35 per cent y-o-y to reach USD 861 million. It had forecast its revenue for the full year 2016 to be in the range of USD 3.65-3.7 billion.
"Just 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," Weiner said.
"I have always had a great admiration for LinkedIn," said Nadella. "I have been talking with Reid and Jeff for a while... I have been thinking about this for a long time.
The offer price, though at a premium over Friday's
closing, is well below the peak of more than USD 270 per share LinkedIn hit in 2015, which values the firm at about 91 times earnings before interest, taxes, depreciation and amortisation.
Hoffman described the acquisition as a "re-founding moment" for the networking site.
The companies see cost savings of about USD 150 million a year by 2018. LinkedIn will be required to pay a USD 725 million break-up fee if it backs out of the deal.
This is the biggest deal of Microsoft under India-born Nadella who was appointed chief executive in February 2014.
Since its first acquisition in 1987 of Forethought, Microsoft has expanded operations extensively through the inorganic route. It has made several acquisitions worth over one billion dollars.
This includes Navision in 2002 (USD 1.45 billion), Skype in 2011 (USD 8.5 billion), Yammer in 2012 (USD 1.2 billion), Nokia (2013) (USD 9.4 billion) and Mojang (2014) for USD 2.5 billion.
In a statement, Nadella said the acquisition could drive growth for LinkedIn as well as Microsoft's Office 365 and Dynamics services.
In a memo to employees, Nadella said the combination will enable features like a LinkedIn feed 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 are trying to complete".
As the LinkedIn and Office engagement grows, "new opportunities will be created for monetisation", he added.
Weiner said the acquisition will help LinkedIn weather intensifying competition in the technology landscape.
LinkedIn went public in May 2011 at USD 45 a share in the biggest Internet IPO since Google's debut in 2004.
While LinkedIn reported USD 2.99 billion revenue, its loss widened to USD 164.8 million in 2015, Microsoft had a net profit of USD 12.2 billion on a revenue of USD 93.6 billion.
Microsoft will finance the transaction primarily through new debt.
Upon closing, Microsoft expects LinkedIn's financials to be reported as part of Microsoft's Productivity and Business Processes segment.
In addition, Microsoft also reiterated its intention to complete its existing USD 40 billion share repurchase authorisation by December 31, 2016, the same timeframe as previously committed.
LinkedIn has more than 9,700 full-time employees and is headquartered in Mountain View, California. It has offices in 30 cities, including Bengaluru, Beijing, Chicago, Dubai, Dublin, Hong Kong and London.
Morgan Stanley acted as exclusive financial advisor to Microsoft and Simpson Thacher & Bartlett LLP was the legal advisor to Microsoft.
Qatalyst Partners and Allen & Company LLC are acting as financial advisors to LinkedIn while Wilson Sonsini Goodrich and Rosati, Professional Corporation, is acting as legal advisor.
