Microsoft Is Betting On 'Socializing The Productivity Suite'

Microsoft Corporation (NASDAQ: MSFT) announced it was acquiring LinkedIn Corp (NYSE: LNKD) for $196 per share in cash, or a total of $26.2 billion. Canaccord Genuity’s Richard Davis maintained a Hold rating on Microsoft, with a price target of $55.

“While we can’t say that we saw his deal coming, after considering the strategic fit it’s actually quite logical,” Davis mentioned.

Impact Of The Acquisition

The offer price represents a 50 percent premium to LinkedIn’s closing price on June 10. The transaction is expected to close by the end of 2016, having received the full support of LinkedIn’s CEO, Jeff Weiner, and Chairman of the Board, Co-Founder and Controlling Shareholder, Reid Hoffman.

Related Link: Why Wunderlich Endorses Microsoft's LinkedIn Acquisition

According to the Canaccord report, “This deal advances MSFT’s efforts along three axes: TAM expansion, cloud and mobile acceleration, and an improved customer experience.”

The TAM for Microsoft’s business productivity segment is expected to expand more than 50 percent to $315 billion, with LinkedIn bringing in more than 105 million monthly active users.

Davis believes “the combination will connect MSFT’s leading professional cloud with the world’s largest professional network, improving operational intelligence and moving forward MSFT's ability to execute against the firms’ shared vision for the world’s first Economic Graph.”

Financial Implications

The deal is expected to be one percent dilutive to Microsoft’s non-GAAP EPS for FY2017 and FY2018, while turning accretive in FY2019.

“LinkedIn’s results will be included in the Productivity and Business Processes segment alongside Office and Dynamics,” the analyst pointed out, while adding that the consensus forecast for LinkedIn’s revenue for CY2017 is $4.5 billion, which should offer a tailwind to the growth of this segment.

Microsoft expects annual cost synergies of about $150 million from this acquisition.