Microsoft says LinkedIn will “retain its distinct brand, culture and independence” under the surprise $26.2 billion acquisition announced this morning — the biggest test yet of Microsoft’s ability to combine with another company.
Jeff Weiner will remain CEO of LinkedIn as part of the deal, reporting to Satya Nadella.
“In essence, what I’ve asked Jeff to do is manage LinkedIn with key performance metrics that accrue to our overall success. He’ll decide from there what makes sense to integrate and what does not,” says Nadella in a memo to Microsoft employees. “We know that near term there will be no changes in who reports to whom so no reporting relationships at Microsoft will change in that regard. This approach is designed to keep the LinkedIn team focused on driving results while simultaneously partnering on product integration plans with the Office 365 and Dynamics teams.”
Microsoft has been testing this approach — allowing its acquisitions to remain independent — on a much smaller scale, augmenting its Office business by gobbling up a series of popular third-party apps, including Acompli, Wunderlist and Sunrise. Microsoft has been keeping those teams and their respective cultures intact, and in their existing locations, rather than attempting to completely assimilate them into the larger company.
After the deal closes, LinkedIn will be included in Microsoft’s Productivity and Business Processes division for purposes of financial reporting. That division currently includes Office for businesses and consumers, as well as the Microsoft Dynamics business solutions. The Microsoft division posted $6.52 billion in revenue and operating profit of nearly $3 billion in the first calendar quarter.
Despite the size of the acquisition, LinkedIn won’t be the biggest component of the division. For example, the Office Commercial business reported $2.9 billion in revenue in the first quarter. By comparison, LinkedIn reported net revenue of $637.7 million and a net loss of $42.4 million in the same quarter.
LinkedIn has 433 million members around the world, compared to 1.2 billion Office users, as shown in this Microsoft chart.
LinkedIn has a total addressable market of $115 billion, Microsoft estimates in a chart that accompanies the company’s presentation for investors this morning. Adding that to a $200 billion addressable market for Microsoft’s existing Productivity & Business Process Segment, the total increases 58 percent, to $315 billion.
Microsoft says this illustrates that, while LinkedIn and Microsoft are “highly complementary, they participate in unique total addressable markets.
In a memo to LinkedIn employees, Weiner says the combination has the potential “to unlock some enormous opportunities.” He cites examples including the ability to significantly boost “the reach and engagement of LinkedIn by using the network to power the social and identity layers of Microsoft’s ecosystem of over one billion customers. Think about things like LinkedIn’s graph interwoven throughout Outlook, Calendar, Active Directory, Office, Windows, Skype, Dynamics, Cortana, Bing and more. ”
In terms of the financial impact of the deal, Microsoft said it “expects the acquisition to have minimal dilution of ~1 percent to non-GAAP earnings per share for the remainder of fiscal year 2017 post-closing and for fiscal year 2018 based on the expected close date, and become accretive to Microsoft’s non-GAAP earnings per share in Microsoft’s fiscal year 2019 or less than two years post-closing.”