MICROSOFT BUYS LINKEDIN

Its biggest acquisition yet, at $26.2 billion

IN A DEAL that has surprised many, Microsoft has bought LinkedIn for the princely sum of $26.2 billion, which equates to $196 a share, a full 50 percent premium on the share price at the time of the announcement. LinkedIn is hugely popular, but not profitable, reporting an annual loss of $166 million in 2015.

The deal has left many a little puzzled. LinkedIn makes the bulk of its money by selling its recruiting service to corporations that are looking to hire. It has singularly struggled to earn much from paid subscribers or advertising. How Microsoft can earn back its investment looks unclear— it has paid a hefty $60 for every LinkedIn user. The deal does bring the company a lot of data to mine, and some opportunities for integration, but the more immediate benefits are unclear.

Microsoft has a mixed record in acquisitions; its $6.1 billion purchase of Nokia in 2014 proved a failure, written off a year later. It famously wanted to buy Facebook for $15 billion, but was rebuffed. This time, it has acquired a big slice of social networking real estate. As the computer business moves away from straight applications and operating systems toward the cloud, mobiles, and social networks, this fits. However, the price paid hardly looks prudent, particularly given LinkedIn’s reliance on stock-based compensation. Its shareholders must be happy now, at least.

Microsoft does have a huge pile of cash to play with, of course—about $92 billion— so win or lose, it can afford it. Meanwhile, there is considerable speculation as to exactly how it will integrate LinkedIn with Office, Bing, and the like, and what is in store for LinkedIn’s 433 million users, who will now presumably be pushed toward Microsoft services.