Microsoft will be hoping LinkedIn isn't another Nokia bad call
Microsoft announced the biggest tech deal of the year when it agreed to acquire LinkedIn for $26.2bn (€23.2bn).
For all their focus on innovation it's a reminder that big tech firms like to absorb other players.
Sometimes with good reason. Facebook tabled a $3bn bid for instant messaging picture service Snapchat, and the deal might well have complemented the suite of social engagement tools that keep Facebook's vast armies of users on the site long enough to soak up valuable advertising messages.
The bid was rejected though, and Snapchat is now valued at around $18bn.
Microsoft's deal looks likely to succeed.
By connecting widely used software like Microsoft Word and PowerPoint with LinkedIn's network of 433 million professionals, the combination could enable Microsoft to add a suite of sales, marketing and recruiting services to its core business products and potentially challenge cloud software rivals such as Salesforce.com.
That's the plan anyway.
The $196-per-share price tag represented a premium of almost 50pc over LinkedIn's stock market value as of last Friday, but was still well below the social media company's all-time high of $270. Analysts said the price was rich, and Microsoft's stock closed down 2.7pc after it announced the deal.
Still, there was cautious optimism that this could be one of the relatively few tech mega-mergers that works out well. "It's a massive growth play for Microsoft," said Forrester analyst Ted Schadler.
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.
For LinkedIn, founded in 2002 and launched the following year by Reid Hoffman, one of Silicon Valley's most visible investors and entrepreneurs, the sale marks the end of a classic startup run: funding from top-tier venture capitalists, a long period of building the company and developing a revenue base, then a big initial public offering, followed by a rollercoaster stock price, and finally an acquisition.
Growth has slowed recently and investors have become far more cautious on the high valuations of many tech companies - both of which likely figured into LinkedIn's decision to sell, analysts said. For Microsoft, the LinkedIn deal is a chance to reverse a terrible track record with acquisitions, including paying $9.4bn for phone maker Nokia in 2014, $1.2bn for business network Yammer in 2012, $8.5bn for video-calling tool Skype in 2011, and $6.3bn for ad business aQuantive in 2007.
In 2012, it wrote down its aQuantive acquisition by $6.2bn, and its cumulative writedowns for Nokia total $8.55bn.
However, the LinkedIn acquisition could help Microsoft play to its strengths in analytics, machine learning and artificial intelligence. LinkedIn and Microsoft both have enormous amounts of data about their customers that can potentially be mined to offer automated suggestions and other features that make business processes quicker and simpler.
Helpfully too, paying for the deal with debt will help reduce Microsoft's tax bill.
Ultimately, LinkedIn is an effort to solidifying Microsoft's focus on the business market, and away from consumer technology. It doesn't need another Nokia. (Reuters)