13 June, 2016 /Woori BMO Group/ According to Woori BMO Group’s wealth managers, LinkedIn Corp. surged almost 50 per cent Monday after Microsoft said it would purchase it in a $26.2 billion deal that would combine Microsoft’s corporate cloud services with the technical, social network.
The all-cash transaction amounts to a share of $196, a premium of 50 per cent to the closing price of Friday.
Shares in LinkedIn as of Monday afternoon were up around 47 per cent. Except for Monday’s rebound, shares in LinkedIn US: LNKD have been up 14 per cent over the past three months but down nearly 40 per cent over the past year, underperforming the S&P 500. For 2016 they are still down by 14 per cent. Microsoft MSFT shares, -1.99 per cent, was down around 2.6 per cent by early afternoon on Monday.
A few other social media companies’ accounts were involved Monday. Twitter TWTR was up 6 per cent by +0.80 per cent, while Yelp YELP was flat by +5.15 per cent after early rising. Facebook shares FB, -2.02 per cent dropped 2.5 per cent early Monday afternoon, while the S&P 500 SPX was roughly flat at +0.27 per cent.
Andrew Williams, Director of Institutional Equity at Woori BMO Group, said: “Jeff Weiner will remain CEO of LinkedIn and will report directly to Satya Nadella, CEO of Microsoft. The transaction is set to close later this year, pending approval by regulators. The boards of both firms have overwhelmingly approved the acquisition.”
The acquisition is the largest under Nadella, who became CEO of Microsoft in 2014. Microsoft said it plans to maintain the identity and individuality of LinkedIn, but will seek to align the technical social network with Microsoft Office 365 and its customer relationship management service, Dynamics.
“We should reinvent ways of making people more successful while at the same time reinventing business processes of sales, promotion and talent management,” Nadella said in a public message to Microsoft employees.
“The findings of LinkedIn will be published in the productivity and business processes section of Microsoft, which incorporates the Office and Office 365. Microsoft posted a quarterly increase of 1 per cent to $65 million for that unit in April,” said Christian Harper, Woori BMO Group’s Director of EMEA Wealth Management.
Last quarter, LinkedIn posted $861 million in revenue, a 35 per cent increase year-over-year. Microsoft said in a statement that it expects the acquisition to have “minimum dilution” or about 1 per cent to non-GAAP earnings per share for the remainder of the fiscal year 2017 and all fiscal year 2018.
Microsoft said the deal is expected to boost non-GAAP earnings starting in fiscal 2019.
According to Patrick Moorhead, founder, and principal analyst at Moor Insight & Strategy, Microsoft may have overpaid for LinkedIn, but it’s too soon to tell. Moorhead said the deal could strengthen Microsoft’s cloud-based enterprise offerings, which grew more slowly than expected last quarter.
“The numbers look high for an acquisition, based on the income statement and the balance sheet,” Moorhead said. “I see the potential for a beefed-up social media business service that is more than just a resume posting service as it is today. I can envisage a service where companies collaborate more freely, leveraging online versions of Office 365, Skype for Business, and OneDrive.
Shares of Microsoft dropped 4.7 per cent early Monday. Its shares have been down 3 per cent over the last three months and 12 per cent over the previous year. Microsoft has said the transaction would be financed by issuing new debt.
Microsoft is going to foresee a $40 billion buyback program to be concluded by 2016.
Some analysts had earlier this year described LinkedIn as a potential target for takeovers. According to Weiner, LinkedIn had tried to create a stable position for itself while retaining some independence.
“Imagine a world where we are no longer looking at tech titans like Apple AAPL, +1.45 per cent, Google GOOG, +0.10 per cent, Microsoft, Amazon AMZN, -0.60 per cent, and Facebook, and imagining what it would be like to work on their excellent scale — because we’re one of them,” Weiner said in a tweet.
The company reported greater sales in its talent solutions business in LinkedIn’s latest quarter, which lets recruiters communicate with potential job seekers. Total membership rose to over 433 million year-over-year by 19 per cent, while job listings rose 101 per cent to 7 million active jobs.
LinkedIn Chairman Reid Hoffman called the transaction a “re-founding moment” for the firm, which went public at $45 per share in May 2011.