Strategic Finance Report: Microsoft's LinkedIn Acquisition Analysis

This report provides a comprehensive analysis of Microsoft's acquisition of LinkedIn, examining the strategic finance involved in the deal. It details the purpose of the acquisition, the parties involved, and the initial and subsequent offers made. The report explores the financial aspects, including the offer value, potential results, and the reaction of LinkedIn's management. A key focus is the analysis of stock performance, including abnormal returns (AR) and cumulative abnormal returns (CAR) for both Microsoft and LinkedIn before and after the announcement. The analysis reveals fluctuations in stock prices and the impact of the merger on LinkedIn's CAR. The report concludes with a discussion of the role of the Takeover Panel and references used in the analysis. The provided solution offers insights into the financial implications and strategic decisions surrounding this significant merger and 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