Today is #FlashBackFriday so we decided to revisit the Microsoft-LinkedIn deal. Enjoy the top 10 moments of one of the most important buyouts in the tech world.
1. MICROSOFT EVOLVES
Microsoft has become a stagnant company. It has not been able to grow further because its primary product is computer software. This is problematic if it wishes to stay competitive against other more innovative tech giants, such as Google and Facebook.
The trend in technology is moving away from PCs to mobile phones, tablets, and applications. In order for Microsoft to earn relevancy and power their social identity they have bought LinkedIn's network, which allows them to enter ‘the virtual conversation.’
Microsoft has the resources to grow LinkedIn's subscriptions as it has done with Skype. There is untapped potential to how many people it may be able to reach through this network. This makes the deal very valuable as it could mean the evolution of Microsoft.
Nadella also said, "I have been... reflecting on how networks can truly differentiate cloud services.” By integrating LinkedIn into Microsoft's cloud it would be introducing a new user group to its services. There would be growth in the cloud services. Many speculate LinkedIn will also become the business base for Cortana.
Evidently, Microsoft is trying to evolve and a successful assimilation of LinkedIn could be the springboard to a new generation of services.
2. WHAT'S IN IT FOR MICROSOFT
LinkedIn may seem to be receiving the better end of the deal, but Microsoft is taking on this venture with its own goals in mind.
Revenue ultimately drives business acquisitions, but in this case, there are other principal interests.
Michael R. Virardi, a motivational speaker with a strong online presence, reasoned that Microsoft will purchase LinkedIn, "in order to have access to 433 million people."
"Access" to this social media network allows the technological giant to enter into an open dialogue with 433 million people.
As Virardi puts it, "LinkedIn knows more about people than Microsoft does."
The social media company is engaged in an ongoing conversation with its users. It knows what their wants and needs, which allows them to be adaptable to trends. This is also valuable for marketing purposes.
Microsoft CEO Satya Nadella expressed similar interests in an email to his employees. "Does [the acquisition] expand our total addressable market? Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose? The answer to all of those questions with LinkedIn is square yes."
3. UNIQUE DEAL GIVES LINKEDIN A FIGHTING CHANCE
Former Microsoft CEO Steve Ballmer has been fired and replaced with current CEO Satya Nadella.
Satya Nadella believes in, "empowering people and organizations."
He describes Jeff Weiner as having a common mission to his own, one that is centered on the above ideal. For this reason, he agreed to keep Weiner on as CEO of LinkedIn.
This is unlike Ballmer who directed acquisitions in a top-down manner. The partnership approach protects both companies’ mission and values in a way that an aggressive takeover would not.
Both Nadella and Weiner believe in this "unique" deal which "brings together the world’s leading professional cloud with the world’s leading professional network."
Read the entirety of Wiener’s letter on LinkedIn.
4. STAFF MEMBERS DIDN'T KNOW
LinkedIn employees were kept in the dark about Microsoft's acquisition of the company. It was only after the official announcement that the proposed change in ownership became known.
LinkedIn CEO Jeff Weiner spoke on the matter in a reassuring email addressed to his staff.
"Today’s announcement, that LinkedIn will be combining forces with Microsoft, marks the next step in our journey together."
Weiner encouraged his employees not to react, "No matter what you're feeling now, give yourself some time to process the news... Every member of the exec team has experienced the same [flood of emotions], but we've had months to process."
He continued by portraying the acquisition as an opportunity for substantial growth. They would have the backing of a multi-billion dollar company with unlimited resources.
LinkedIn currently manages 9,700 full-time employees. Many may fear for their jobs following the recent Nokia write off under Microsoft. A new owner will likely bring changes in the workforce.
5. BEHIND THE SCENES
Following the February plummet, LinkedIn's BOD took action. In their stockholder meeting in April, they brought in George 'Skip' Battle and Michael Moritz as directors.
According to Forbes.com Battle and Moritz, "are individually connected to about 45 of the top companies around, they know everyone with cash to spare... and they have direct phone access to everyone with the seniority and inclination to acquire LI."
Their skills as negotiators are evident; Microsoft offered LinkedIn an exceptional deal. It was drafted one can assume rather quickly. LinkedIn had never formally pitched the company to investors, or auctioned its shares. Formal offers would have been put up for a vote as it is a publicly traded company.
This is why the announcement came as such a surprise; the deal was made rather quietly. Likely, Battle and Moritz utilized their connections to get the job done.
6. STOCK PRICES SOAR
Microsoft to the rescue!
What followed the announcement?
LinkedIn's stock prices shot up by 47% once the decision was publicized to near $192.21 per share. This is the closest they have been to a full recovery since their stocks crashed in February.
Their peak was last year (2015) at $258.39 per share.
Reid Hoffman's fortune nearly doubled following the announcement, he earned $800 million in a day. According to Forbes.com, he is the major beneficiary from the deal. Hoffman is not the only CEO to benefit. Jeff Weiner’s stocks are now worth $78 million.
7. THE BIGGER PICTURE
News.microsoft.com stated that "the transaction [was] unanimously approved by the Boards of Directors of both LinkedIn and Microsoft."
Despite the obvious concerns, LinkedIn's BOD unanimously agreed to proceed. Who can say no to $26.2 billion?
Let's talk numbers.
In February of this year, LinkedIn faced a $10 billion loss of market capital. Its stocks plummeted roughly 56%, because of weaker than expected earnings.
Despite a steady increase in membership in the first quarter of 2016, its stocks never recovered and remained to hover at $45-$60 per share.
Reid Hoffman, the billionaire founder and chair holder of LinkedIn, saw his estate drop by over a billion dollars on the same day.
Four months later, the BOD made ‘the announcement’ to the world.
8. IS THIS THE END OF LINKEDIN?
Should you, a devoted LinkedIn user, be worried for the future of your profile and the company?
Yes, you should.
Microsoft has earned an adverse reputation for its investment choices and activities. Impairment is the term that comes to mind when placing Microsoft and Acquisition in the same sentence.
Financial records reveal that the majority of their billion dollar acquisitions have largely underperformed.
Investments Past and Present:
Disregarding the fact that Skype was not a profitable company it was purchased in 2011. It was and still is a software program primarily used for free personal calls. Former Microsoft CEO Steve Ballmer has since been accused of making the acquisition simply to keep it out of the hands of competitors.
Microsoft was able to increase Skype's users substantially, but despite the strides that were made to develop the software, Skype remained a minor contributor to the parent company's revenue. Ballmer's $8.5 billion deal in this case underperformed.
AQuantive was a digital marketing agency meant to rival Google's dominance in online advertising. By 2012 AQuantive was written down by $6.2 billion, nearly the full price Microsoft paid to acquire it.
Nokia was written off in 2015. As a result, 7,800 jobs were cut, primarily in Microsoft's phone business. The total amount that Nokia was written off for was $7.6 billion, which was more than the $7.2 billion that was spent to acquire it.
This brings us back to LinkedIn, a substantially bigger investment.
Will Microsoft be able to assimilate this media platform successfully? Or will this be another written down company in the years to come?
What's that saying, fool me once shame on you, fool me twice shame on me? Fool me thrice... what about four times?
9. MAJOR TRANSACTION
Microsoft and LinkedIn closed one of the BIGGEST TECH DEALS in the industry to date.
For Microsoft, this is the sixth billion dollar deal it has struck in the past ten years.
The LinkedIn deal stands out for two reasons. Firstly, this is the largest sum of money Microsoft has ever agreed to pay in a company acquisition. Secondly, the US26.200.000.000 dollars is a larger sum than all of the prior billion dollar deals (within the communications sector) combined.
AQuantive - digital marketing (2006) $6.3bill
Skype - telecommunications (2011) $8.5bill
Yammer - social networking (2012) $1.2 bill
Nokia - mobile and smartphones (2013) $7.2bill
This deal has struck major headlines as Microsoft has a history of failed investments and LinkedIn may be the next.
10. THE ANNOUNCEMENT
On the 13th of June 2016, Microsoft Corp. affirmed its plans to acquire professional social media platform LinkedIn. The deal is set for $196 per share for a total of USD $26.2 billion to be completed as, "an all-cash transaction," according to news.microsoft.com.
I wonder. Will the bank re-issue the $10,000 dollar bill just for this payment?