?

Log in

No account? Create an account
 
 
22 June 2016 @ 06:18 pm
Microsoft buys LinkedIn for $26.2B  
That was unexpected and I even thought it is a joke. But it is not a joke.

Why would Microsoft buy the largest job board?
Microsoft is in a different business.


Responses:
1) What a terrible time to be burning that much cash, just before the next recession, and on a resume site. I was starting to see some good things coming from Microsoft but this makes me shake my head and question leadership big time.

2) I suspect major LinkedIn investors shopped around the company and financial-engineered a sophisticated kickback
 
 
 
Валерий Крылов: flowjusty_tylor on June 22nd, 2016 10:31 pm (UTC)
After IPO it's always the same "bubble business".
Dennis Gorelikdennisgorelik on June 22nd, 2016 11:20 pm (UTC)
What do you mean under "bubble business"?
Валерий Крылов: flowjusty_tylor on June 22nd, 2016 11:44 pm (UTC)
Increasing market cap instead of increasing actual profits.
Dennis Gorelikdennisgorelik on June 23rd, 2016 12:07 am (UTC)
Oh, I see: get $420B company and increase market capitalization to $430B by merging with $15B company.
Loose $5B in the process, but who cares about collateral damage?
Валерий Крылов: flowjusty_tylor on June 23rd, 2016 12:27 am (UTC)
Yes. The cash itself is not the market cap.
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 12:21 am (UTC)
One of the problems with the current system is that merger-and-acquisition bonuses for executives distort the decision-making process quite a bit...
Dennis Gorelikdennisgorelik on June 23rd, 2016 12:30 am (UTC)
What is the typical merger-and-acquisition bonuses?

Especially on the buyer's side: what kind of bonuses managers of the buying company gets?

Edited at 2016-06-23 12:30 am (UTC)
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 02:16 am (UTC)
Indeed... I should actually research this better...

In any case, 12 years ago it was this:

http://www.law.harvard.edu/programs/corp_gov/papers/04.grinstein.ceo-compensation.pdf

So, it was not always, but only in 39% of the cases (although with a great correlation with the power of a CEO over the board), and for large acquisitions it was between 5 and 14 million.

(The trends like this are all upwards, I presume, but this "39% number" means that one needs to research a specific company before making an accusation like the one I am making here...

For the current Microsoft executive it does not seem to be the case that this bonus is built into the compensation structure automatically, and we'll really need to check in a year comparing to these numbers to see if there is a jump: http://www.geekwire.com/2015/microsoft-ceo-satya-nadella-gets-18-3m-in-annual-compensation-as-board-cites-strong-consistent-vision/

And in this case, his long-term package looks like it is structured to protect against short-term temptations... So I might be wrong applying this thinking to this particular case, even if it is a concern in general...)
Dennis Gorelikdennisgorelik on June 23rd, 2016 04:24 am (UTC)
Executives motivation for merging
---http://www.law.harvard.edu/programs/corp_gov/papers/04.grinstein.ceo-compensation.pdf
a manager who acquires another company spends extra
time and effort in constructing the deal, and therefore can use the task as a justification for
additional compensation.
---

1) Create busywork for yourself.
2) Ask for higher compensation.
3) Profit.

> http://www.geekwire.com/2015/microsoft-ceo-satya-nadella-gets-18-3m-in-annual-compensation-as-board-cites-strong-consistent-vision/
> his long-term package looks like it is structured to protect against short-term temptations

Where exactly can I see that Nadella's long term package is structured to protect against temptations?

If his bonus is a share of absolute Microsoft profit, then merging with other companies would increase Nadella's compensation even if shareholders would lose money due to merge with LinkedIn.
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 05:47 am (UTC)
Re: Executives motivation for merging
That 80 million "LTPSA" he got in 2014 are not unconditional... It's quite easy for him to lose that money, so there is at least a strong incentive for him not to cause excessive damage...

(If footnote 2 from the compensation table in the linked text is insufficient in terms of details, there are further materials I've read a few hours ago, but I don't remember the details or urls...

In any case, the bottom line is that I was almost certain that there was a conflict of interest here between his incentives and company's best interests, and now I am not sure, after doing that research prompted by your previous question...

I am now agnostic on that, that's all... His compensation numbers in a year would tell us more...

But I think I'll leave it at that; to come up with a definite conclusion would probably require investing more effort than I want to put into this...

***

I did hear some versions about synergies with LinkedIn which made some sense; like putting all that LinkedIn info into Cortana to assist people in their business dealings with each other, and perhaps even projecting that onto HoloLens eventually... I had a chance to try their HoloLens recently, and it was quite impressive, so they probably take that possibility into account...

Even if it sounds like a risky bet, it's not altogether crazy... The LinkedIn stock curve was also suggestive if one looks at the complete history of that - they've met each other half-way, I would say...
)
Dennis Gorelikdennisgorelik on June 23rd, 2016 05:56 am (UTC)
Re: Executives motivation for merging
What 80 million LTPSA are you referring to?

---
http://www.geekwire.com/2015/microsoft-ceo-satya-nadella-gets-18-3m-in-annual-compensation-as-board-cites-strong-consistent-vision/
The cash bonus, representing 120 percent of Nadella’s target, is based on the board’s review of the CEO’s performance.
---

It depends on "the board's review", not on actual gains by shareholders.

> putting all that LinkedIn info into Cortana to assist people in their business dealings with each other

You do not have to buy whole LinkedIn in order to put that data into Cortana.
It could be collaborative research project and if that project shows promise - then do merging.
Or even just license the data.
Why buy the whole company?

Now LinkedIn top management does not have strong incentive to maximize profits or even revenue growth.
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 01:00 pm (UTC)
Re: Executives motivation for merging
В таблице:

http://www.geekwire.com/2015/microsoft-ceo-satya-nadella-gets-18-3m-in-annual-compensation-as-board-cites-strong-consistent-vision/

Scroll down, see the big table, stock awards column,
year 2014 row for Nadella, amount 79777109 (read footnote 2 to that table).

I am not saying there is no conflict of interests, I am just uncertain (an agnostic position does not need to be defended much, does it? ;-) )

***

В этих транзакциях нужно иметь в виду, что их мог бы и кто-нибудь другой купить... Плюс для Микрософта состоит в том, что они предотвращают такую возможность...
Dennis Gorelikdennisgorelik on June 23rd, 2016 01:11 pm (UTC)
Re: Executives motivation for merging
> I am just uncertain

Of course we are uncertain about Microsoft internal cooking.
But do you see anything in Microsoft compensation structure that would motivate Nadella against LinkedIn acquisition (assuming that overall such acquisition would be a net loss for Microsoft shareholders)?

> их мог бы и кто-нибудь другой купить

Why would LinkedIn acquisition by somebody else concern Microsoft?
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 01:27 pm (UTC)
Re: Executives motivation for merging
Yes, he can lose that "80 million", if the overall performance is really bad... If it will be like the acquisition of Nokia devices, when Microsoft decided to write-off over 8 billion (more than the whole deal price) as a loss, I think there is no way he would be able to convert that conditional stock award into his property... (It's also stock, so the shares better not fall...)

Net loss or no net loss, who cares (they don't count money with this kind of granularity, the stakes in that game are much higher), but if it is again a huge write-off, like with Nokia devices (which were bought before he became the CEO, so he was not responsible for that), there seems to be quite a bit protection built-in against this particular CEO being able to cash on things like that... (I don't think this protection was in place for his predecessor, who accumulated way too much personal power).

***

If a competitor acquires, they might not be open to a licensing or technology deal with Microsoft, and many of them have products competing directly with Cortana and such... So a competitor would gain an advantage, and an opportunity to move forward here would probably be lost forever...
Dennis Gorelikdennisgorelik on June 23rd, 2016 08:35 pm (UTC)
Re: Executives motivation for merging
1) You are describing "total disaster" scenario.
Nadella must be totally incompetent in order to kill LinkedIn and loose all $26B.
Much more likely scenario is partial loss. When LinkedIn stagnates or slowly declines.
If Nadella is not penalized for stagnation and slow decline, but gets acquisition bonus - then it is clearly a perverse compensation incentive.

2) Microsoft already has solid investor and business connection with Facebook.
If they need huge social graph for their Cortana algorithm - they have it.
No need to buy LinkedIn for that.
anhinga_anhingaanhinga_anhinga on June 23rd, 2016 08:53 pm (UTC)
Re: Executives motivation for merging
To lose ALL of 26B would be rich ;-) I mostly think an intermediate-scale disaster, like losing a third of that, that is all of the premium over market cap in that deal... That would be quite enough, and much more realistic...

But unless it is a publicly visible multibillion-dollar write-off, nobody would care...

Stagnation would not be welcome for Microsoft as a whole, but specifically at the LinkedIn level would not be too much of a problem for Nadella...

***

Facebook is different; MS wants business social graph, that is linkedin, they don't care about causal social... Their business model favors that quite specifically...

Facebook can also become a competitor at any moment, even if the relations are currently good...
Dennis Gorelikdennisgorelik on June 23rd, 2016 10:32 pm (UTC)
Re: Executives motivation for merging
> Facebook can also become a competitor at any moment

Spending $26B to protect yourself from something that may possibly happen does not looks like a reasonable purchase.
anhinga_anhingaanhinga_anhinga on June 24th, 2016 02:13 am (UTC)
Re: Executives motivation for merging
Мне всё это тоже не кажется разумным... И в этом е-майле, который Наделла послал сотрудникам Микрософта по этому поводу, я как-то не усматриваю никакого разумного содержания:

http://www.pcworld.com/article/3083064/data-center-cloud/heres-microsoft-ceos-letter-to-employees-about-the-26-billion-linkedin-acquisition.html
herve joncourhervejoncour on June 23rd, 2016 01:57 am (UTC)
It's insane, this LinkedIn is a website which sends stupid messages to your mailbox once in while even though the last time you visited it 10 years ago.

I have no idea what MSFT will gain by acquiring LinkedIn. At least with Nokia there was an idea of moving into the handheld market.

26B$ for a web site ...

I just read a wonderful quote recently " ... we were promised people on Mars and got 140 characters ..."
Dennis Gorelikdennisgorelik on June 23rd, 2016 04:27 am (UTC)
LinkedIn is the largest job board (huge number of candidates profiles). That's where most of its value is.
But Microsoft is paying hefty premium on top of LinkedIn actual value.
herve joncour: pic#118432461hervejoncour on June 23rd, 2016 12:22 pm (UTC)
As well as Monster, Dice etc etc. Microsoft headcount is stable enough, so what are they going to do with all these profiles. Sell it? It's completely different business.
Dennis Gorelikdennisgorelik on June 23rd, 2016 12:26 pm (UTC)
Yes: that's another problem.
There is no good reason for Microsoft to go into job boarding business.

My guess is they think that they would be able to extract huge value from LinkedIn outside of job boarding business.
I think Microsoft is wrong about it.
herve joncour: pic#118432461hervejoncour on June 23rd, 2016 03:04 pm (UTC)
I can't imagine why it has a price tag of 26.2b$. American Airlines has market cap 17.2b$

Anyways, it's someone's else money

Edited at 2016-06-23 03:04 pm (UTC)
Dennis Gorelikdennisgorelik on June 23rd, 2016 08:27 pm (UTC)
> it has a price tag of 26.2b$. American Airlines has market cap 17.2b$

I see no contradiction here.

I fly once every few years.
I use LinkedIn several times per week.
herve joncour: pic#118432461hervejoncour on June 23rd, 2016 08:38 pm (UTC)
Well, I fly about a dozen times a year and use LinkedIn once in 10 years. I guess, I am not a targeted audience.

Why do you use LinkedIn several times a week, if you don't mind?
Dennis Gorelikdennisgorelik on June 23rd, 2016 10:36 pm (UTC)
I'm finding people for my business network on LinkedIn.
I verify/research my new connections on LinkedIn.

Developers are usually afraid of "distracting" emails that LinkedIn sends.

I am not afraid of emails. I am getting hundreds of emails in my email inbox every day.
serjiojitserserjiojitser on June 23rd, 2016 07:07 pm (UTC)
Big Brother watching us
linkedin - единственная соцсеть, где почти все люди сидят под своими родными именами. Это очень нужно спецслужбам, кои весьма сильно сотрудничают с Микрософт (как и с Фейсбук, вконтакте и т.д.)

Конечно это не единственная причина.
Dennis Gorelikdennisgorelik on June 23rd, 2016 08:26 pm (UTC)
Re: Big Brother watching us
Какая разница спецслужбам, кому принадлежит LinkedIn?
serjiojitserserjiojitser on June 24th, 2016 05:17 am (UTC)
Re: Big Brother watching us
С Мелкософтом проще договариваться видимо. Вот такая теория.
Dennis Gorelikdennisgorelik on June 24th, 2016 05:39 am (UTC)
Re: Big Brother watching us
Мне кажется, что с LinkedIn договориться проще, чем с Microsoft.
У Microsoft больше денег, поэтому они более независимые.

Если уж следовать теории заговора, то спецслужбы протолкали этот Microsoft + LinkedIn merge для того, чтобы внедрить своих агентов (уже сидящих в LinkedIn) в Microsoft.
serjiojitserserjiojitser on June 25th, 2016 08:55 pm (UTC)
Re: Big Brother watching us
Мысль здоровая.
Ещё версия: если у Микрософта больше денег благодаря сотрудничеству со спецслужбамим..
Dennis Gorelikdennisgorelik on June 26th, 2016 12:24 am (UTC)
Re: Big Brother watching us
Сотрудничество со спецслужбами - часто полезное дело.
Вот только деньги, в основном, идут в направлении от Microsoft (и другого частного бизнеса) к спецслужбам, а не наоборот.
А спецслужбы делают то, для чего они и предназначены - ловить преступников. За что, собственно, частный бизнес и платит в виде налогов и иногда прямых платежей.

К примеру, большАя доля новых premium subscription на postjobfree.com - fraud (stolen credit cards).
Мне бы хотелось, чтобы спецслужбы за этими ворами охотились. Но, к сожалению, для них эти ворованные кредитки - слишком мелкие.
Поэтому сотрудники FBI начинают скучать, когда я им об этом мелком воровстве рассказываю.

Но в случае масштаба LinkedIn/Microsoft - объёмы мошеннических финансовых транзакций - намного больше, и сотрудничество со спецслужбами может иметь смысл.


Edited at 2016-06-26 12:25 am (UTC)
serjiojitserserjiojitser on June 26th, 2016 09:53 pm (UTC)
Re: Big Brother watching us
т.е. люди ищут работу/сотрудников и платят ворованными кредитками?
и потом тебе приходится эти деньги возвращать банку, не так ли?
интересно, как такое прокатывает на амазоне..
Dennis Gorelikdennisgorelik on June 26th, 2016 10:27 pm (UTC)
Re: Big Brother watching us
> т.е. люди ищут работу/сотрудников

Нигерийцы и русские ищут лохов в США для пересылки товаров, купленных на ворованные кредитные карточки.

> платят ворованными кредитками?

Почти всегда - пытаются заплатить ворованными.
Но иногда - кредитками уже нанятых лохов.
А лохам - присывают фальшивый чек для окэшивания.

> и потом тебе приходится эти деньги возвращать банку, не так ли?

Возвращаться приходится не только прочарженные деньги, но ещё и $15 штраф за каждый chargeback.
А если таких chargebacks много - мой payment processor вообще откажется со мной работать.

> интересно, как такое прокатывает на амазоне

У них целые отделы занимаются отловом мошенников.

Big Brother, при этом, халявит.

Edited at 2016-06-26 10:29 pm (UTC)