Acquisition of Linkedln from Microsoft

Chaorui Liu

ACFI 701

Question 1:

        The strategy behind the acquisition of Linkedln from Microsoft is that the Microsoft hoped to leverage business model and boost current performance by holding a premium position and cutting cost. From the CEO of Microsoft, Mr. Nadella’s prospect, the acquisition combines Microsoft’s Office programs with Linkedln such a professional network that connect workers. Nadella hopes the acquisition of Linkedln could help the Microsoft’s customer do an important job more efficiently and conveniently. In addition, the resources from Linkedln are huge and valuable for Microsoft include almost 400 million active users and useful data.

Question 2:

        Benefits: 1 Boost current performance by either holding premium position or cutting cost. 2. Fundamentally redirect the company into a better business model.

        Drawbacks: 1. Pay too much for the acquisition. 2. the acquirer could not figure out how to integrate these two company in a way that better off for both companies. 3. the investors may not be happy with the acquisition if the acquisition does not add any value to the firm because they can do it themselves by holding both two companies. 4. If the company could realize the same goals by do it internally, then the acquisition is unnecessary.

Question 3:

As the acquisition price of 26.2 billion which is an almost 50% premium above Linkedln’s market price at the time, therefore, the market price at that time would be 26.2/1.5=17.5 billion. The cost of acquisition would be 26.2-17.5=8.7 billion. Since the economic gain=new cash flows from synergies/discount rate, for simplicity, let us assume the discount rate= Return on Market=1 yr return on SPDR ETF which is 0.15, 8.7*0.15=1.3 billion. Therefore, as long as the annual new cash flows from the acquisition of Linkedln for Microsoft is above 1.3 billion, then this acquisition is worthwhile.