Wry & Dry

Microsoft likes LinkedIn

Facebook is the sort of social media that W&D avoids.  Mostly because he doesn't understand it.  And why would anyone want to look at my vacation photos, or know that I've been to dinner at a three-hat restaurant?

LinkedIn, on the other hand, is a network with which W&D has familiarity.  Urbane, uncluttered, factual, business-focused.  And, ideal for W&D's views on life, LinkedIn is perfectly gender-neutral: 50% each of male and female visitors; whereas Facebook has as many as 57% of its visitors as female*.

And so W&D's interest was piqued when Microsoft, an IT company, decided to buy LinkedIn for US$26 billion.  Cash.  At a massive 50% premium to its share price and on an EBITDA multiple of some 90!

What is also interesting is that Microsoft is borrowing the $26 billion to fund the acquisition, when it has over $100 billion in cash.

The answer to the question on readers lips as to "why borrow?" is that most of the $100 billion is offshore earnings i.e. not in the US, and therefore not subject to the US' very large corporate taxes.  If Microsoft wanted to bring the $26 billion onshore to pay for LinkedIn it would have to pay corporation tax of 35% to the US government.

US taxes

Microsoft's track record for acquisitions isn't crisp, however.  It's $7.3 billion purchase of Nokia's phone handset business was written off last year. 

*Source: www.accountingweb.com