



By Sarah McBride

June 13 (Reuters) - Microsoft Corp will buy LinkedIn Corp for $26.2 billion in its biggest-ever deal, a bold stroke by Microsoft CEO Satya Nadella in his efforts to make the venerable software company a major force in next-generation computing.

By connecting widely used software like Microsoft Word and PowerPoint with LinkedIn's network of 433 million professionals, the combination could enable Microsoft to add a suite of sales, marketing and recruiting services to its core business products and potentially challenge cloud software rivals such as Salesforce.com Inc. .

"LinkedIn and Microsoft really share a mission" of helping people work more efficiently, said Microsoft CEO Nadella in a conference call with analysts. "There is no better way to realize that mission than to connect the world's professionals."

The $196-per-share price tag represented a premium of almost 50 percent over LinkedIn's stock market value as of Friday, but was still well below the social media company's all-time high of $270. Analysts said the price was rich, and Microsoft's stock closed down 2.7 percent at $50.14.

Still, there was cautious optimism that this could be one of the relatively few tech mega-mergers that works out well. "It's a massive growth play for Microsoft," said Forrester analyst Ted Schadler.

The deal may also help spur further mergers and acquisitions in the tech sector, where a broad correction is bringing down the prices of public and private companies even as a handful of major players sit on large cash piles.

For LinkedIn, founded in 2002 and launched the following year by Reid Hoffman, one of Silicon Valley's most-visible investors and entrepreneurs, the sale marks the end of a classic startup run: funding from top-tier venture capitalists, a long period of building the company and developing a revenue base, then a big initial public offering, followed by a roller-coaster stock price and finally an acquisition.

The company's growth has slowed recently and investors have become far more cautious on the high valuations of many tech companies - both of which likely figured into LinkedIn's decision to sell, analysts said.

For Microsoft, the LinkedIn deal is a chance to reverse a terrible track record with acquisitions, including paying $9.4 billion for phone maker Nokia in 2014, $1.2 billion for business network Yammer in 2012, $8.5 billion for video-calling tool Skype in 2011, and $6.3 billion for ad business aQuantive in 2007. In 2012, it wrote down its aQuantive acquisition by $6.2 billion, and its cumulative writedowns for Nokia total $8.55 billion.

The LinkedIn acquisition could also help Microsoft play to its strengths in analytics, machine learning and artificial intelligence, Nadella said on the investor call. LinkedIn and Microsoft both have enormous amount of data about their customers that can potentially be mined to offer automated suggestions and other features that make business processes quicker and simpler.

Microsoft noted that the deal brings in a big new customer base: after adding in LinkedIn, the total potential market size of Microsoft's productivity and business-process segment sits at $315 billion, up from $200 billion without LinkedIn.

Microsoft Chief Financial Officer Amy Hood said the deal would be financed mainly with debt, a way for the cash-rich company to reduce its tax bill. The company has $105 billion in cash and other liquid assets. Moody's said it was reviewing Microsoft's rare AAA debt rating for a possible downgrade.

LinkedIn CEO Jeff Weiner will remain with the company, which will be operated as a separate unit and retain its name.





CHASING GROWTH

Nadella has been trying to reinvigorate Microsoft since taking over the lumbering giant two years ago, and has helped build more credibility around the company's efforts in areas such as cloud-based services. When he took the top job in February 2014, the company's share price was $34.20; early Monday afternoon, it was trading around $50.

With LinkedIn, Nadella is solidifying Microsoft's focus on the business market, where it has retained a much stronger position than it has in the smartphone-centric consumer technology business.

In touting the synergies of the deal, Nadella gave an example of a customer walking into a meeting scheduled on a Microsoft Outlook calendar integrated with LinkedIn. That person might receive notification that one of the people in the meeting went to college with a colleague, enabling another level of connection.

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