Analyzing the Basics of the Microsoft-LinkedIn Transaction



Basics of the transaction

As we discussed previously in this series, Microsoft (MSFT) is buying LinkedIn (LNKD) for $196 per share in cash. The companies are guiding for an end of 2016 close. However, that date could be moved up if the regulatory process follows the normal timeline for deals with little antitrust risk. Provided there aren’t any antitrust issues, the gating item should be the SEC (U.S. Securities and Exchange Commission) approval of the proxy statement. If the deal doesn’t have antitrust issues and the SEC quickly reviews and approves the proxy statement, the deal should be able to close in the normal four or five-month timeline for uncomplicated deals with a shareholder vote.

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Merger conditions 

  • LinkedIn’s shareholder vote (majority of unaffiliated shares)
  • Microsoft’s filing of a premerger notification in accordance with the Hart-Scott-Rodino Act
  • European Union antitrust
  • Canadian antitrust
  • Brazil antitrust
  • any other regulatory approvals

Non-solicitation agreement

LinkedIn agreed to a non-solicitation agreement with a fiduciary out. This means that during the pendency of the merger, LinkedIn isn’t permitted to shop itself or contact other potential buyers. That said, if LinkedIn receives an unsolicited approach in writing, which could lead to a superior offer, it’s permitted to discuss a deal with the potential buyer in accordance with its fiduciary duty to maximize shareholder value. If LinkedIn accepts a better bid from someone else, it will owe Microsoft a breakup fee of $725 million.

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Synergies and earnings effects

The deal should be minimally dilutive to 2017 and 2018 earnings depending on the closing date. Microsoft is guiding that the purchase should be accretive to Microsoft earnings per share in 2019 or two years after closing. It estimates $150 million in annual cost synergies by 2018.

Merger arbitrage resources

Other important merger spreads include the deal between Cigna (CI) and Anthem (ANTM) and KLA-Tencor (KLAC) and Lam Research (LRCX). For a primer on risk arbitrage investing, read Merger Arbitrage Must-Knows: A Key Guide for Investors.

Investors who are interested in trading in the tech sector can look at the iShares Global Technology ETF (IXN).


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