Why Microsoft paid $26.2bn for LinkedIn

Essentially, we’re both trying to do the same thing but coming at it from two different places: For LinkedIn, it’s the professional network, and for Microsoft, the professional cloud. — Jeff Weiner, LinkedIn CEO.

Microsoft Corp. has acquired and LinkedIn Corporation, the world’s largest and most valuable professional network in an all-cash transaction valued at $26.2 billion.

The deal which saw Microsoft pay $196 for each share of LinkedIn listed on the New York Stock Exchange (NYSE) is subject to regulatory and other approvals. Already the boards of both companies have sanctioned the deal and it is expected to close this year.

“The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” said Satya Nadella Microsoft CEO. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.”

A statement by Microsoft said the company will finance the transaction primarily through the issuance of new indebtedness. According to its SEC filing detailing the merger, if for any reason the deal does not go through, LinkedIn will have to pay Microsoft a $725 million termination fee. But why is the deal so important to both companies?

Microsoft’s acquisition of LinkedIn positions it to build out more services for enterprises in line with the company’s strategy. With 105 million monthly active users, 433 million registered overall and activity in over 200 countries, LinkedIn gives Microsoft a wider reach in terms of social networking services and professional content which has been part of Microsoft’s plan all along. In 2012, the software company acquired Yammer, a social networking company for enterprises, for $1.2 billion, which was incorporated into the Microsoft Office division.

The recent acquisition of Lynda.com by LinkedIn also open further channels for Microsoft to sell its products. The online learning platform could be deployed to sell as well as teach people how to use Microsoft’s products.

How LinkedIn would compete with companies that are building more software on top of their social graphs has often been raised; it can now be laid to rest.

In his letter to LinkedIn employees about the acquisition, Weiner wrote: “Imagine a world where we’re no longer looking up at Tech Titans such as Apple, Google, Microsoft, Amazon, and Facebook, and wondering what it would be like to operate at their extraordinary scale — because we’re one of them.”

LinkedIn will retain its distinct brand, culture and independence. Weiner will remain CEO of LinkedIn but will report Nadella.

“Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn’s network, now gives us a chance to also change the way the world works,” Weiner said. “For the last 13 years, we’ve been uniquely positioned to connect professionals to make them more productive and successful, and I’m looking forward to leading our team through the next chapter of our story.”