Microsoft will buy professional social network LinkedIn for $26.2bn

Microsoft buys LinkedIn for cloud and data-mining boost

Microsoft will purchase business social network LinkedIn for $26.2bn (£18.5bn) as it strengthens its focus on cloud-based business-oriented services.

The deal, expected to be closed later this year, is the biggest acquisition yet for Microsoft under the leadership of CEO Satya Nadella, who took over in 2014.

Even though Microsoft said LinkedIn will remain a separate entity, it clearly has plans to tap into the rich data pool available through the social network with its 433 million professional users.

"LinkedIn and Microsoft really share a mission" to help people work more efficiently, said Microsoft CEO Nadella in a conference call with analysts. "There is no better way to realise that mission than to connect the world's professionals."

He further elaborated that in future, people could be scheduling meetings through Microsoft Outlook calendar, which would automatically offer them background information about every participant of the meeting including their education, shared connections and experience.

Moreover, the combined data pool of the both firms would allow Microsoft to more efficiently mine information for marketing purposes.

"The future of productivity is around people, identity and data and the relationships between them," said Matt McIlwain, a portfolio manager at Madrona Ventures.

"Microsoft is buying LinkedIn for the opportunity to leverage these capabilities and combine them with Microsoft's strong but complementary assets in those three areas."

Some analysts have suggested the acquisition will position Microsoft to become a major player within the cloud-based business-oriented software sector where Salesforce currently is the lead competitor.

"The acquisition makes sense in respect of Microsoft’s link with enterprise in its cloud platform and portfolio of enterprise business services, it will help Microsoft build out its enterprise services capabilities,” said Professor Mark Skilton from Warwick Business School of the University of Warwick.

"LinkedIn makes two-thirds of its income from talent solutions in recruiting and job market services that define it and the remainder in selling marketing solutions and premium subscriptions.”

Microsoft has a history of making questionable acquisitions. In 2014, it paid $9.4bn for phone maker Nokia, only to later write down $8.55bn of the original value. It also bought business network Yammer in 2012 for $1.2bn and video-calling system Skype in 2011 for $8.5bn.

For LinkedIn, Microsoft has offered $196 per share, which is almost 50 per cent over LinkedIn's stock market value as of Friday.

LinkedIn, which during its best days traded for $270 per share, has been losing momentum in recent years. The company, founded in 2002 by Silicon Valley investor Reid Hoffman, has been struggling to develop new growth strategies.

"LinkedIn has grown a user base of 106 million active users, but compared to 310 million active Twitter users and the mighty 1.65 billion Facebook monthly users, LinkedIn has never managed to grow its commercial services in what could have been a strong enterprise market,” said Skilton. “It has remained the website to go to for professional networking."

LinkedIn CEO Jeff Weiner, who will remain with the company, said LinkedIn will operate independently of Microsoft, in a similar way to how YouTube operates within Google’s Alphabet and how Instagram works as part of Facebook.

The deal may also help spur further mergers and acquisitions in the tech sector, where a broad correction is bringing down the prices of public and private companies even as a handful of major players sit on large cash piles.

The deal will require approval from regulators in the United States, the European Union, Canada and Brazil. LinkedIn will become part of Microsoft's productivity and business processes unit that generated $6.52bn of Microsoft's $20.53bn in revenue last quarter.

Despite Microsoft's weak track record in mergers and acquisitions, the one prior major deal on Nadella's watch - the $2.5bn purchase of video game maker Minecraft in 2014 - is generally considered a success, complementing Microsoft's work on augmented-reality projects such as the HoloLens headset.

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