Microsoft & LinkedIn C.E.O.s on Deal
Satya Nadella of Microsoft and Jeff Weiner of LinkedIn said that they began talking in earnest about their $26.2 billion cash deal in February.
By CNBC on June 13, 2016. Photo by CNBC. Watch in Times Video »SEATTLE — Microsoft has made its most ambitious move in years to reassert itself in a technology market it once dominated.
The software giant said Monday morning that it was acquiring LinkedInin a $26.2 billion cash deal. The acquisition, by far the largest in Microsoft’s history, unites two companies in different businesses: one a big maker of software tools, the other the largest business-oriented social networking site, with more than 400 million members globally.
The deal is Microsoft’s biggest bet yet that the traditional software business is shifting quickly to cloud computing, a model in which customers rent software and other services delivered over the internet. While LinkedIn does not have the household name of Facebook, a much larger and more lucrative social network, it is the most widely used site for people to advertise their professional skills and work history.
It is also further evidence that Satya Nadella, Microsoft’s chief executive, sees the company’s future further and further removed from the PC software that once helped co-founder Bill Gates turn Microsoft into the world’s most valuable company.
Microsoft has been upstaged in recent years by Apple and Google, and trails both companies in the total value of its publicly traded shares. But in an unusual turnabout on Monday, Microsoft’s surprise acquisition announcement overshadowed news from an Apple product event in San Francisco.
Though they operate in different businesses, both Microsoft and LinkedIn make most of their money by catering to professionals. Executives involved in the deal said that the common thread prompted the acquisition.
“This deal is all about bringing together the professional cloud and professional network,” Mr. Nadella, said in a telephone interview.
So valuable is the data that recruiters spend thousands of dollars a month to use it to fill job openings.
Microsoft and LinkedIn Stock Activity
“They know the interconnections of the business world,” said Brian Blau, an analyst at Gartner, the technology research firm. “That could really benefit Microsoft from a sales standpoint.”
Microsoft has bought its way into new businesses before, though most of its largest deals have not turned out well. In 2014, it paid nearly $9.4 billion for the smartphone operations of Nokia and some years earlier spent more than $6 billion for aQuantive, an internet advertising company, but ended up writing off most of the value of those deals after they performed poorly.
Mr. Nadella, who took over as chief executive in February 2014, was not involved in those deals. Since assuming leadership of the company, he has made mostly smaller acquisitions, with the exception of the $2.5 billion deal to acquire the maker of the game Minecraft.
Mr. Nadella said that when Microsoft pursued deals that hewed closer to a strict set of criteria, one of which is that the acquired company operates in areas that are core to Microsoft’s business, the deals have worked out.
“Every time we’ve gotten it right, we’ve had success in those dimensions,” Mr. Nadella said.
In a joint interview, Mr. Nadella and Jeff Weiner, the chief executive of LinkedIn, said that their conversations began in February, when the two began talking about different ways in which the companies could work together.
Mr. Weiner, for his part, said he began thinking about a LinkedIn combination with Microsoft long before he sat down with Mr. Nadella. Microsoft was once a reviled company in Silicon Valley, where LinkedIn is based, but as its dominance in the industry ebbed it came to seem far less threatening.
Mr. Nadella has further improved Microsoft’s image in the technology industry by being more open to partnerships with once-bitter tech rivals like Salesforce.com. Mr. Nadella has accelerated the company’s shift from traditional software to cloud applications and services. Its stock has risen significantly under his leadership.
“I’ve had a lot of admiration for the work Satya had done since taking over as C.E.O.,” Mr. Weiner said.
And with more than $100 billion in cash and short-term investments as its disposal, Microsoft is an attractive suitor for companies that decide they’re better off joining forces with a bigger entity.
Microsoft is paying considerably less for LinkedIn than they would have just last fall, when LinkedIn shares were trading over $260 a share. Disappointing earnings helped slash the value of the company. The deal calls for Microsoft to pay $196 a share to buy LinkedIn, a healthy premium to the $131.08 its shares closed at on Friday.
“This is a good time for LinkedIn to sell,” said Michael A. Cusumano, a professor at the M.I.T. Sloan School of Management. “They lost money last year. They’ve found it’s very expensive to keep growing. They’re probably as valuable as they will ever be.”
Microsoft could have acquired LinkedIn for even less if it had acted much earlier. A little over a decade ago, Microsoft held discussions with LinkedIn about acquiring it for $250 million, the venture capitalist and former LinkedIn executive, Keith Rabois, tweeted on Monday. Mr. Rabois confirmed in an email that LinkedIn was genuinely receptive to such a deal.
Yet big challenges remain for the company in today’s technology landscape, where new powerhouses like Amazon.com, the leader in cloud computing, have a significant head start.
LinkedIn could help Microsoft accelerate its shift to the internet by giving it a large online property that has became the de facto standard for posting résumés online. The site is heavily used by recruiters for finding new workers. Microsoft is one of LinkedIn’s biggest customers.
Microsoft and LinkedIn described numerous situations in which Microsoft online applications could tap into LinkedIn’s trove of data. Microsoft offers an online sales tool called Dynamics CRM that could scour LinkedIn profiles to help companies draft smarter sales pitches. Data from LinkedIn profiles could be funneled automatically into Outlook, Skype and other applications so someone could learn more about a person with whom they are about to have an online meeting.
“The mission statements of LinkedIn and Microsoft have different words, but are essentially the same,” Jeff Weiner, the chief executive of LinkedIn, said in an interview. “We’ve come at it from different perspectives. LinkedIn built a professional network. Microsoft built a professional cloud.”
The companies said that Reid Hoffman, a founder of LinkedIn and its controlling shareholder, had approved the deal, as did Mr. Weiner. Mr. Weiner will remain chief executive of LinkedIn, which will operate as an independent brand, the companies said.
For a model of how LinkedIn will operate, Mr. Weiner said that the companies looked to other successful technology acquisitions, including Google’s purchase of YouTube and Facebook’s buy of WhatsApp. “We’ve seen the success those companies have had,” he said.
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