Acquisition of LinkedIn by Microsoft: A Strategic Finance Analysis

This presentation provides a strategic finance analysis of the acquisition of LinkedIn by Microsoft, including the purpose of the acquisition, parties involved, initial and subsequent offers, potential results, reaction of the target management, and the role of the Takeover Panel. It also includes an analysis of the stock performance before and after the announcement of the acquisition.

Strategic finance for
managers
TASK 1 (PART B)

 Microsoft Corporation is a multinational technology
company, listed on NASDAQ and headquartered in
Redmond, Washington.
 Product portfolio:
1. Computer software
2. Personal computers
3. Consumer electronics
4. Other products and devices.
Microsoft Corporation (MSFT)

 LinkedIn is a social networking sites traded on NYSE
and operates worldwide.
 Company renders professional networking services
especially to the recruiters and sales professionals to
create their profiles to interact with each other via
social networking.
LinkedIn

Acquisition of LI by MSFT

 It is one of the biggest acquisition in the corporate
history.
 Announcement date – 13th June, 2016
 Value of acquisition - 26.2 billion dollar.
Contd.

 To jump towards software packages by having vast
network of LikedIn Corporation
 To use LinkedIn wide network to deliver best value to
the customers in return for their money invested.
Purpose of acquisition

 MSFT’s CEO – Satya Nadella
 LI’s Ceo – Jeff Weiner
 MSFT’s CFO – Amy Hood
 MSFT’s CLO – Brad Smith
 MSFT’s Co-Founder – Bill Gates
 MSFT’s financial advisor – Morgan Stanley
 MSFT’s legal advisor – Simpson Thacher
 LI’s Legal advisor – Wilson Sonsini, Goodrich & Rosati
 LI’s Qatalyst partner – Allen and company
Parties involved in the M&A

 Initially, MSFT announced to takeover LinkedIn at
lower price, but due to bidding from sales force, it
pushed deal prices by 22% or roughly by $5 billion
dollar.
 In the terms of value, it increased acquisition price per
share to $196.
Initial offer and subsequent offer

 Although, LI’s share price has been declined by 40%
and generate lower yield than expected resulted in net
loss of $165 billion. But still, health premium offered
by MSFT to 50% over the trading price $133/share is a
beneficial deal for LI, as a result, LI agreed to merge
with Microsoft.
Contd.

 Offer value worth 26.2 billion dollar is approximately
91 times of LI’s EBITDA (Earnings before interest,
taxes, depreciation and amortization).
 Excluding cash, it is about 84 times to EBITDA.
 Venture capitalists finalized at 250 million dollar.
Offer value

 19% year by year (YOY) growth by having more than
433 million across world.
 9% YOY growth by having more than 105 million
members each month.
 49% YOY by increasing mobile usage to 60%.
 34% growth YOY by increasing member page views to
45 billion
 101% growth by having more than 7 million active job
listing
M&A offer’s potential results

 With the planned M&A, both MSFT and LI’s CEO Satya
Nadella and Jeff Weinger were excited and tell their staff
member about the deal.
 They assumed that this deal will bring together world’s
largest professional cloud company and leading
professional networking company.
 It will bring fantastic and excellent network by having
more than 433 million professionals. Moreover, potential
increase in number of commercial and dynamic offices to
365 will assist business to reinvent its productivity and
operational processes.
Reaction of the target by management

 Takeover panel is a regulatory body situated
in London, England. The body is responsible
and accountable to regulate and monitor
takeovers and mergers undertaken by the
company.
Takeover panel

 It plays an essential role to make sure that all the
shareholders are treated equally and well during the period
of takeover bids.
 PTM has wider authority and power to declare such
circumstances that are unacceptable.
 Moreover, it also plays an inevitable role in mitigating
issues and resolve complexities associated with the
acquisition of LinkedIn with Microsoft Corporation.
 Both the MSFT and LikedIn are liable to follow PTM’s
rules, regulations and principles to have successful merger
plan.
Role of PTM

 Abnormal return represents the surplus or shortage of
estimated return on share over actual return.
 CAR is just the cumulative values of abnormal return
for the event, in other words, it refers to sum of
abnormal returns.
AR and CAR

MSFT’s stock AR (pre-annoncement)

MSFT’s share AR (Post-
annoucement)

MSFT’s CAR (Pre-announcement)

MSFT’s CAR (Post-Announcement)

LI’s stock AR (Pre and post)

LI’s stock CAR (Pre and post-
announcement)

 As per the calculation, it can be seen that before the
announcement of acquisition, in the initial period,
MSFT’s stock performance tends to increase, but at the
closure of announcement, it goes decrease.
 However, on the other hand, after the announcement,
suddenly its stock price moves upward while,
thereafter, it dropped down and then fluctuations
continuously.
Analysis of stock performance

 During the period of 1st July to 29th July, stock price got
improved from 51.16 to 56.58 which show that
MSFT’s share price got improved, but still, the rate of
growth in the stock prices is fluctuating.
 However, in context to LinkedIn Corporation, it has
been found that cumulative abnormal return (CAR) of
LinkedIn was higher. For example, on 3rd June CAR
was 36.57 which is continuously decreasing till 13th
June. At the same time, abnormal return (AR) is also
fluctuating with the passage of time.
Contd.

 LI’s CAR has been reduced to a great extent after the
announcement of merger. This affected performance of
the corporation to a great extent. It is because on 14th
June CAR was 29.80 but on 1 July it reached to 18.07.
Moreover, till the end of July month CAR reduced to
0.89.
Contd.

 4 Reasons why Microsoft wasted $26.2 billion to buy
LikedIn. (2016). [Online]. Available through:
<http://www.forbes.com/sites/petercohan/2016/06/13/4-
reasons-microsoft-wasted-26-2-billion-to-buy-linkedin/
#c692ce7533d1>. [Accessed on 12th November 2016].
 Gara, A. (2016). LinkedIn is the Latest Tech Company To
Give Up On The Stock Market. [Online]. Available through:
http://www.forbes.com/sites/antoinegara/2016/06/13/linkedi
n-is-the-latest-fast-growing-tech-company-to-give-up-on-
the-stock-market/#8757b1c50bed. [Accessed on 12th
November 2016].
REFERENCES

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