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Microsoft to buy LinkedIn in an all cash deal valued at $26.2 billion

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This came out of nowhere.

Microsoft announced that it is acquiring professional networking site LinkedIn in an all cash deal valued $26.2 billion which includes LinkedIn’s net cash. Microsoft will be paying $196  per share for the company. LinkedIn will continue to function as an independent company whit CEO Jeff Weiner reporting to Microsoft’s Satya Nadella.

The transaction is expected to close this calendar year. Microsoft will finance the deal primarily through the issuance of new indebtedness. After the deal is concluded, Microsoft expects LinkedIn’s financials to be reported as part of Microsoft’s Productivity and Business Processes segment.

Reid Hoffman, chairman of the board, co-founder and controlling shareholder of LinkedIn said that he supports the deal and vote his shares in accordance with the deal.

Microsoft said that the acquisition will have minimal dilution of ~1% to its earnings per share for the remainder of fiscal year 2017 and fiscal year 2018. It expects LinkedIn to become accretive to Microsoft’s earnings per share in fiscal year 2019 or less than two years post-closing.

Financials

Microsoft reported a profit of $3.8 billion for the quarter ended March 31, 2016 (Q3 FY16), a 25% decline from $5 billion last year. The total revenues for the quarter stood at $20.5 billion, down 6% from $21.72 billion the corresponding quarter last year. The operating income of the company stood at $5.3 billion, a 20% decline from $6.6 billion last year.

Microsoft’s has three reporting segments: Personal computing, Intelligent Cloud and Productivity and Business Processes.

LinkedIn’s total revenue increased 35% year-over-year to $861 million for the quarter ended March 2016.  Adjusted EBITDA was $222 million, or 26% of revenue, in Q1. It has four reporting segments: Talent solutions, Hiring, Marketing Solutions and Premium Subscriptions.

LinkedIn’s numbers

– 19% growth year over year (YOY) to more than 433 million members worldwide
– 9% growth YOY to more than 105 million unique visiting members per month
– 49% growth YOY to 60 percent mobile usage
– 34% growth YOY to more than 45 billion quarterly member page views
– 101% growth YOY to more than 7 million active job listings

Microsoft’s hardware business layoffs and Nokia sale

In May, Microsoft cut 1,850 jobs in the smartphone hardware business  in a bid to streamline the division. The restructuring cost the company $950 million of which $200 million would be used for severance payments.  Microsoft, which had purchased Nokia’s devices and services business and licensed its patents for €5.44 billion in September 2013, has been steadily writing off the purchase over the past couple of years. The company laid off 12,500 employees in July 2014, and another 7,800 in July 2015 when it also wrote off Nokia’s $7.5 billion phone hardware business and $780 million of restructuring expenses.

Microsoft also sold off Nokia’s feature phone business to FIH Mobile, a subsidiary of Foxconn, for $350 million.

LinkedIn’s Lynda acquisition

In 2015, LinkedIn bought online tutorials and training platform Lynda.com for $1.5 billion. The deal was a combination of ~52% cash and ~48% stock. Through the deal, LinkedIn was able to get Lynda’s library of premium video content across professional topics and languages. In addition, job seekers on LinkedIn would be able to sign up for/be prompted to get accredited on needed skills at jobs through Lynda.

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