Big fish in the pond always swallow small fish. As Facebook bought companies including WhatsApp, Instagram etc, Microsoft is following the same footsteps. After buying Nokia, Microsoft on 13th June closed another big deal that was a completely unexpected. Interestingly, Microsoft is buying LinkedIn on cash. The deal has been closed by giving value of $196 per LinkedIn share.
This deal was done by Chief Executive Satya Nadella. He wanted to end the impression that Microsoft is becoming an old company that cannot take up competition with growing technological giants. Nadella linked this deal with merging together professional programs with professional networks. “It’s really the coming together of the professional cloud and the professional network,” said Mr. Nadella on an interview on Monday. He intends that professionals use LinkedIn data in a more useful way. Data can be used by directly using professional tools with LinkedIn information. Nadella also reveled his plan about giving access to Cortana Digital Assistant, a digital access to LinkedIn data.
This deal was a life savior for LinkedIn as well. The shares of LinkedIn in the past one year tumbled from $269 in February 2015 to as low as $101 in February 2016. Microsoft offered LinkedIn something, which was way above its market value. Microsoft will also pay a premium of $50 to LinkedIn stakeholders. This deal is expected to be closed by the end of this year.
Mr. Nadella is more focusing towards Corporate customers. He believes that buying social media entities will reshape Microsoft’s image. Moreover, the potential of social media is dramatically increasing. This strategy can be seen in his other actions where he has enhanced Microsoft platforms to Android Smartphones and Linux desktops. Integration in different systems is the best strategy to enhance user base.
Is Microsoft still in trouble
Microsoft Office and LinkedIn are both facing challenges in terms of growth. Unfortunately, The revenue of Microsoft BPU (Business Processing Unit) that also includes Office grew only by 1%. The number of Office users were 1.2 Billion and total revenue was $6.5 Billion by the end of the first quarter of this year. Growth of LinkedIn in the first quarter of 2016 declined as well. In 2014, LinkedIn grew by 45%. In 2015, it growth decreased to 35%. In this year, its growth is expected to decline to 25% according to UBS Securities LLC.
After this news, Moody’s Investor services said that it will review Triple A ratings of Microsoft due to this deal. It is to remember that ratings tell about credit quality of the company.
It is clear that Microsoft see LinkedIn as more than a social media tool. LinkedIn large database will give Microsoft, a sales channel to sell its products. LinkedIn current chairman Hoffman said “Today is a re-founding moment for LinkedIn. I see incredible opportunity for our members and customers and look forward to supporting this new and combined business. I fully support this transaction and the Board’s decision to pursue it, and will vote my shares in accordance with their recommendation on it.”