Microsoft wants to buy LinkedIn for $26.2 billion in cash.
The question in my mind is: who will celebrate this announcement?
Look at Microsoft’s recent track record on buying companies:
In April 2014 Microsoft bought Nokia’s smart phone and smart tablet business for more than $9 billion. Since then, Microsoft has laid off about 20,000 former Nokia employees and posted an accounting loss of more or less the entire purchase price. That flushing sound you hear is the background music for this deal, it’s just about a complete bust.
So, if I were one of LinkedIn’s roughly 6,000 employees, I might be thinking about polishing my resume.
And by the way, what is Microsoft’s board thinking? The purchase price for LinkedIn is about $196 per share—LinkedIn stock closed last Friday at $131.08, so Microsoft is paying a 50% premium over the stock market’s consensus value of LinkedIn. That’s a lot of icing on the cake. Obviously one can ask: is Microsoft paying too much?
One explanatory factor is that Microsoft is holding about $115 billion in cash and cash equivalents. That’s about $1 million in cash reserves for each of Microsoft’s current employees. What’s the point of holding that much cash? I’m sure the employees and the stockholders would like to get their hands on some of it.
Is it really possible that the directors and executives of Microsoft haven’t been able to figure out any profitable ways to invest that huge cash hoard?
What are they thinking?
Copyright © Richard Carl Subber 2016 All rights reserved.