Microsoft Buys LinkedIn for $26.2B in Mega Social-Business Deal

Microsoft will acquire LinkedIn in a $26.2 billion cash deal that bolsters the tech giant’s offerings for professionals and shrinks the ranks of the major independent social networks.

Over the past 14 years, LinkedIn (NYSE: LNKD) built the go-to online networking tool for professionals—it has more than 433 million members worldwide—and became one of the pillar social networks in the early mobile era, along with Facebook and Twitter.

The challenge, as with any social network, has been finding a way to consistently make money. Mountain View, CA-based LinkedIn has done better than most, with a nearly $3 billion business built primarily on job ads, recruiting tools, and premium user features.

But Wall Street has expected more. LinkedIn shares fell more than 40 percent in February when the company reported results consistent with recent performance but also projected slower growth. The company’s stock has recovered some since then, but it became a more affordable target for Redmond, WA-based Microsoft (NASDAQ: MSFT).

Nevertheless, Microsoft is paying handsomely for LinkedIn: $196 per share in cash, a nearly 50 percent premium to LinkedIn’s Friday closing price of $131.08. (LinkedIn’s stock is up about 47 percent this morning, trading around $193 as of this writing.) Microsoft is paying for the acquisition mainly by issuing new debt.

The deal is Microsoft’s biggest acquisition in its history, and could end up defining the tenure of CEO Satya Nadella, who has re-focused the company around cloud software for businesses. Nadella envisions LinkedIn complementing his company’s Office 365 and Dynamics products.

“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,” Nadella explained in an e-mail to Microsoft employees. “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.”

It’s not the first social media bet by Microsoft: Nadella’s predecessor, Steve Ballmer, scooped up Yammer for $1.2 billion in 2012. Microsoft began pushing Yammer more aggressively this year by integrating it more closely with its Office 365 software for business customers.

In recent months, LinkedIn has invested in its mobile app, bolstered its news feed “to deliver better business insights,” and rolled out a new version of its Recruiter product to large business customers. It has also delved into online learning technology with its $1.5 billion purchase of Lynda.com last year.

It will be interesting to watch how LinkedIn evolves under its new parent company, but it might continue down its current path, at least for now. Jeff Weiner will remain LinkedIn’s CEO, and Microsoft promises that LinkedIn will “retain its distinct brand, culture, and independence.”

“Today is a re-founding moment for LinkedIn,” Reid Hoffman, LinkedIn’s co-founder and chairman, said in a prepared statement. “I see incredible opportunity for our members and customers and look forward to supporting this new and combined business.”

The boards of both companies have unanimously approved the deal, but it must still receive the approvals of shareholders and regulators. The acquisition is expected to close this year.

[Standing in the above photo are (from left) Weiner, Nadella, and Hoffman.]

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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