Microsoft Corp agreed to buy LinkedIn Corp for $26.2bn in a cash deal.
The offer of $196 per share represents a premium of 49.5 percent to LinkedIn's Friday closing price.
"Today is a re-founding moment for LinkedIn," Reid Hoffman, chairman of LinkedIn's board, said in a statement.
Jeff Weiner will remain chief executive of LinkedIn, reporting to Microsoft CEO Satya Nadella.
The deal is expected to close in 2016.
LinkedIn shares soared 49pc before the stock market opened in US while Microsoft's fell 3pc.
Despite the rich premium paid by Microsoft, LinkedIn is selling for well below its peak of more than $270 per share in 2015, but a weak forecast earlier this year sent its shares tumbling amid slowing online ad revenue. LinkedIn went public in 2011 at $45.
"I think, first of all, (LinkedIn) is a great business, even though the company stubbed their toe back in February," said Ivan Feinseth, analyst at Tigress Financial Partners. "It's apremium company and it deserves a premium valuation."
Microsoft said LinkedIn boss Jeff Weiner would stay in charge and report to Satya Nadella.
Satya Nadella said: “The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” Nadella said. “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.”
Linkedin's Weiner added: “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,” Weiner added in the statement. “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 deal is expected to close in 2016, the companies said in a joint statement.
Microsoft said it would issue new debt to fund the deal.
After the deal, LinkedIn will become part of Microsoft's productivity and business processes unit.
The takeover will result in the combined entity employing over 2,000 people in Ireland.
However, the two companies are unlikely to combine operations or shed jobs as a result of Microsoft's biggest ever acquisition, with both having just invested in major new buildings around Dublin.
Microsoft employs over 1,200 people in Ireland, while LinkedIn has 1,000 employees at its Dublin 4 offices.
The takeover deal, which values each LinkedIn member at €53, saw shares of Microsoft fall as investors show concern over such a large outlay of cash for an online networking site. LinkedIn makes money through subscriptions and advertising revenue, although growth in its ad money fell to 20pc per year form 56pc per year a year ago.