Microsoft Swallows LinkedIn

microsoft acquires linkedin

On June 13, 2016, Microsoft (NASDAQ: MSFT) announced that it had reached an agreement with LinkedIn (NASDAQ: LNKD) to acquire it for US$26.2 billion

The deal prices Linkedin at US$196/share, or a premium of ~50% to the share price as of June 10, 2016, the last day before the public announcement.


The strategic rationale published on Microsoft’s website follows:

LinkedIn is the world’s largest and most valuable professional network and continues to build a strong and growing business. Over the past year, the company has launched a new version of its mobile app that has led to increased member engagement; enhanced the LinkedIn newsfeed to deliver better business insights; acquired a leading online learning platform called to enter a new market; and rolled out a new version of its Recruiter product to its enterprise customers. These innovations have resulted in increased membership, engagement and financial results, specifically:

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

“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.”

On paper, it makes sense. Microsoft and LinkedIn both have a large pool of professional / enterprise users, so the two companies are hoping to integrate some of their offerings together (e.g. you might be able to check someone’s LinkedIn profile from your Outlook mailbox next time you send them a meeting invite). In practice, I’ll be interested to see how two such large businesses with different cultures blend together, especially when you have LinkedIn’s current CEO reporting to Microsoft’s CEO. Time will tell.

In any event, the transaction seems to offer little potential as a merger arbitrage opportunity. The spread is of ~2%, but more importantly, the deal may only close at year end, which increases the holding opportunity cost. The merger proxy won’t be available for a while so the opportunity can be revisited then if the spread widens or if the timeline changes. At best, the transaction could be closing late August or in September, which still would not make the yield compelling, in my view, enough to invest (sub 8% annualized).

Disclosure: No position in the stocks mentionned.

This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.

6 thoughts on “Microsoft Swallows LinkedIn”

  1. Thank you for running the merger arb on this one. I was curious when I saw the headline. On a side note, the best source for info on the deal with regards to strategy and potential challenges was the conference call that they hosted for their research analysts. Recommend.

  2. Good call, I skimmed it but that and the associated slides are definitely good info. As much as ROI from a merger arbitrage perspective is not impacted by the strategic rationale of the deal, it’s always nicer to bet on strategic deals (as opposed to PE deals for instance) since they’re the least likely to fall apart. Thanks for commenting!

    1. Yes, I ditched this one earlier in October (see portfolio) due to a deteriorating risk profile. The spread is now wider, but I think I have better investment opportunities at the moment. I’m publishing a new article next week that will expand on the changes that took place in the portfolio.

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