Microsoft Buying LinkedIn for $26.2B

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LinkedIn CEO Jeff Weiner

The professional networking service will keep its name, and Jeff Weiner will stay on as CEO.

Microsoft said Monday that it is buying professional networking service site LinkedIn for about $26.2 billion in one of the biggest technology industry deals ever.

LinkedIn, based in Mountain View, Calif., has more than 430 million members. Users can connect with professionals, upload their résumés and search for jobs on its site and apps.

Microsoft Corp. is paying $196 for each share of LinkedIn Corp., a 50 percent premium of the stock's closing price of $131.08 on Friday.

LinkedIn will keep its name and independence, and Jeff Weiner will stay on as CEO. He will report to Microsoft CEO Satya Nadella. Reid Hoffman, LinkedIn's chairman, co-founder and controlling shareholder, also supports the sale.

The deal is expected to close this year. It is subject to approval by LinkedIn’s shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions. LinkedIn would be required to pay a $725 million breakup fee if it ended up bowing out of the deal.

Microsoft is based in Redmond, Wash. LinkedIn shares soared 47 percent in early trading to $193.25. Microsoft shares slipped more than 4 percent.

"The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals," said Nadella. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.”

Said Weiner: “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.” He added, “For the last 13 years, we’ve been uniquely positioned to connect professionals to make them more productive and successful, and I’m looking forward to leading our team through the next chapter of our story.”

The companies on Monday projected cost savings of about $150 million annually by 2018. Microsoft expects the acquisition to have minimal dilution of about 1 percent to non-GAAP earnings per share for the remainder of its fiscal year 2017 after the closing and for fiscal year 2018 and become accretive to Microsoft’s earnings per share in fiscal year 2019, meaning less than two years after the expected deal close.

LinkedIn was founded in 2003 and went public in 2011. This year, it aired its first-ever TV ad during the Oscar broadcast on ABC.

Wedbush Securities analyst Michael Pachter said about the deal: "Microsoft's valuation of LinkedIn at $26.2 billion is well above what we think the company could achieve on its own in the next four years, and therefore believe that shareholders would be wise to readily accept the deal. Additionally, we believe this deal is likely to pass regulatory review without issue."

But he also highlighted: "We maintain our view that LinkedIn has a challenged business model and has only been able to grow revenue by spending marketing and research and development dollars; flat operating margins and little operating leverage drove shares down recently, and we think scaling the business or driving operating leverage from the current model is unlikely. We surmise that Microsoft has a plan to extract additional growth, although we are not in a position to comment given that we do not cover Microsoft."

Jefferies analyst Brian Pitz wrote: "We believe the deal highlights the underlying M&A trend in the internet landscape. LinkedIn’s unique position and reach highlights the value of a differentiated asset." He added: "We believe that M&A will continue to be a theme in the internet with a focus on uniquely positioned platforms, 100 percent owned IP and differentiated technology in fragmented industries."