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Microsoft Offers Concessions to Get EU Nod for LinkedIn Bid

Zacks

Shares of Microsoft Corporation MSFT have been steadily treading higher over the last one year. The stock generated a return of 8.87% compared with the S&P 500 index’s gain of 7.87%.

The upward momentum in the stock has been primarily driven by strong cloud growth. The continuing enterprise strength, benefits from the Office 365 subscription model, strong growth prospects of Azure and promising new products are expected to generate top-line growth in 2016.

Meanwhile, per a Reuters report, it is rumored that Microsoft is trying its best to get the European Commission’s approval for its $26.2 billion takeover of LinkedIn Corporation LNKD that is scheduled for Dec 6. To that end, Microsoft will not only allow LinkedIn competitors to access to its own software, but will also give hardware manufacturers the freedom of opting to install services offered by its rivals.

For example, professional social networks that already have access to the company’s application program interface (API) will continue to enjoy that functionality even after the deal materializes. Additionally, hardware manufacturers such as Hewlett Packard Enterprise Company HPE, Dell and Lenovo will have the freedom to install any other professional social network on their devices.


Why this Move?

Microsoft reportedly submitted the concessions related to its LinkedIn deal to the European Commission last week as the EU anticipates the deal to have adverse effects on competition. Moreover, as per the Reuters report, Microsoft is trying its bit to convince the EU that it is playing fair and is offering a level playing ground for competitors to prove their mettle.

We note that LinkedIn has posted encouraging results in the third quarter and witnessed a strong year-over-year improvement in both the top and the bottom line. Moreover, it recorded an impressive 18% surge in cumulative member count.

LinkedIn’s traction in the mobile segment is particularly impressive, primarily attributable to the launch of its applications for Apple’s AAPL iPhones and Android-based smartphones. Synergies from its acquisitions are expected to contribute to earnings through targeted marketing strategies over the long term.

If the EU gives the green signal for the deal, Microsoft will be able to tap into the strong user base of 433 million LinkedIn users to promote its own products as well as generate a healthy cash flow through ad revenues.

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Zacks Rank & Key Picks

At present, Microsoft has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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