Microsoft is buying the business-focused social network LinkedIn for $26.2bn (£18.5bn) in cash, its biggest ever purchase, the two companies announced on Monday.
The agreed deal – at $196 per LinkedIn share – was announced by both companies before the market opened on Wall Street. LinkedIn’s shares soared 49% on the news while Microsoft’s dipped close to 3%.
Microsoft said that after the acquisition, LinkedIn will “retain its distinct brand, culture and independence”. Jeff Weiner, LinkedIn’s chief executive, said the deal “gives us a chance to change the way the world works”.
LinkedIn has 430 million members, which means the deal values each member at more than $60. The network was founded in 2002 and floated in New York in 2011 with a value of $4.25bn.
The acquisition comes as LinkedIn has struggled. In February this year, its shares plunged 43% on the New York Stock Exchange, after the business network forecast much weaker than expected growth in 2016. The price collapse wiped $11bn off the value of LinkedIn in a single day, which left its share price down at a three-year low of $101.
If the deal with Microsoft goes through as planned, Jeff Weiner, who joined LinkedIn in 2008 as the company’s president before becoming chief executive later that year, will stay on in his current role, reporting directly to Microsoft boss Satya Nadella.
In a statement, Nadella hinted at the competitive advantage he expects the network to provide for Microsoft. He said LinkedIn would pair well with the company’s business-focused software such as Office and customer relationship manager Dynamics.
“The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” he said. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organisation on the planet.”
Reid Hoffman, LinkedIn’s co-founder and controlling shareholder, described the deal as “a re-founding moment” for the company. Weiner added that the “relationship with Microsoft, and the combination of their cloud and LinkedIn’s network … gives us a chance to change the way the world works.”
The deal, which has already been approved by the two companies’ boards, is expected to be completed by the end of this year.
After the deal was announced on Monday, LinkedIn was valued at $24.68bn (£17.34bn). Hoffman’s share – about 10.9% of the company outstanding shares – was worth more than $2.69bn (£1.89bn).
Even as LinkedIn shares soared on the announcement, Microsoft shares are expected to take a bit of a beating in the near future.
“Shares in Microsoft were understandably suspended from trading in the lead-up to this bit of news, given that the traditional reaction to such an announcement often involves a shareholder exodus from the predator,” pointed out Augustin Eden, research analyst at Accendo Markets, who described LinkedIn as “professional networking/dating/narcissism website”. “With this deal lightening Microsoft’s coffers to the tune of $26bn, make that an exodus of biblical proportions.”
The deal heightened expectations of more tech mergers to come. “The use of debt rather than stock will reassure those that worry this is another sign of a market top, and will have the added benefit of raising the prospect of a buyer for Twitter,” said Chris Beauchamp, senior market analyst at IG.
Shares in Twitter were up 6% on Monday, yet even with that boost they were still worth less than half of what they were worth a year ago. Executive turnover and lack of growth has led to speculations that sale could be “inevitable”, according to analysts at SunTrust Robinson Humphrey.
“We want to underscore that we do not think the company is up for sale in the near term. However, we believe that if current trends persist, Twitter would be a top candidate in 2017,” they wrote last week.
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