Microsoft's Acquisition of LinkedIn: A Critical Analysis

This assignment provides a critical analysis of Microsoft's acquisition of LinkedIn for $26.2 billion. It examines the reasons behind the acquisition, the impact on the job search industry, and the potential financial implications for Microsoft. The assignment also references various articles from Forbes and Fortune to support its arguments.

Running head; ACQUISITION OF LINKEDIN BY MICROSOFT 1
Acquisition of LinkedIn by Microsoft
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Reasons for the Acquisition
By spending more than 26 billion dollars in the acquisition of LinkedIn, Microsoft has
just made one of the most significant moves. The acquisition process, which values LinkedIn at
$196 per share, is smart. The new deal with LinkedIn means that Microsoft could embed
LinkedIn with its email system, Skype and other enterprise products for it to recreate its
enterprise connective tissue. Microsoft will, therefore, increase its platform in the social media,
reaching more individuals to use its products. It’s reported that LinkedIn has over 433 million
users, a quarter more than those staying in the United States (Forbes.com, 2018). It is estimated
that two members joined this social website every second during its launch in 2003. After the
first month, 4500 members joined. 106 million people visit the website for the first time every
month, and by the first quarter of 2026, already 45 pages had been viewed, p from the previous
quarter which was at 37 billion.
The action of Microsoft acquiring LinkedIn has led to many critics. Some business
experts say that Microsoft is misguided by closing the deal. Indeed Microsoft has spent a lot of
this deal. They compare the agreement with the previous one Microsoft had made with Nokia
which failed (Forbes.com, 2018). However, most critics look only at the short-term impacts to
the investment portfolio about the deal. Every significant online player has given an effort one
time or the other, to capitalize on job search, which makes sense. Employment and job search,
by its nature, impact indirectly every individual on the planet. When a company can narrow
down the employment market and monetize the capture, then they will win big.
Re-Valuations

ACQUISITION OF LINKEDIN BY MICROSOFT 3
Satya Nadalla, the current CEO of Microsoft is trumpeting new era, (MSFT, -0.16%).
Microsoft being the acquirer purchased LinkedIn at $26.2 billion. This is the biggest deal
Microsoft has ever made in history, and one of the most expensive annals technology
transactions. Happy talks on the probability of seizing the total addressable markets (TAM) are
not what matters to shareholders. It will increase as the corporation go through different
experiences (Forbes.com, 2018). The figures, therefore, indicate that Microsoft will need to
either make more improvements that are significant in LinkedIn returns or drive the many
customers belonging to LinkedIn to its products, thereby making financial success the deal.
However, the chances are very slim.
To find out, I will examine the returns Microsoft is generating today, as well as what it
needs to do to produce the same margin on every asset its pilling on the balances sheet through
the purchase of LinkedIn. At the closure of the first quarter, LinkedIn had shareholders’ net
worth or equity of $4.6 billion. This is the difference of between what the company pays for its
assets and what they owe the suppliers and lenders. On the other hand, Microsoft is paying for
the equity at 26.2 billion dollars, with an assumption that $2.6 billion is spent on secondary
liability, not included in the price. Therefore, the company is piling a total of $28.8 billion on
the purchase of LinkedIn (Fortune, 2018). However, for the new acquirer, the bar only rose
enormously. For it is paying a very high price, the returns on Microsoft due to LinkedIn will be
not measured on the $6.9 billion in assets, but on the $28.8 billion it has incurred. LinkedIn if
found to be running its business less profitable than Microsoft by far. Its COROA is at 12%
while Microsoft is at 15.2%. Meaning, it produces just over $0.15 on every dollar asset.

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References
Forbes.com. (2018). Forbes Welcome. [Online] Available at:
https://www.forbes.com/sites/forbescoachescouncil/2017/03/29/microsofts-acquisition-
of-linkedin-changed-the-job-search-industry-in-ways-we-dont-even-know-yet/
#7cb31cd64130 [Accessed 21 Mar. 2018].
Fortune. (2018). Here's Proof Microsoft Just Paid Way Too Much to Connect With LinkedIn.
[Online] Available at: http://fortune.com/2016/06/13/microsoft-linkedin-overpaid/
[Accessed 21 Mar. 2018].
Forbes.com. (2018). Forbes Welcome. [Online] Available at:
https://www.forbes.com/sites/petercohan/2016/06/13/4-reasons-microsoft-wasted-26-2-
billion-to-buy-linkedin/#4be5ac1fa3cd [Accessed 21 Mar. 2018].