Ishan
Institute of Management & Technology, one of the top B.Com colleges in
Delhi NCR has been active in exploring the elements of successful mergers and
acquisitions that create shareholder value. As such the biggest merger and
acquisition story of the year so far is the acquisition of LinkedIn by
Microsoft. Priced at USD 26 billion and USD 192 per share it is truly a big
ticket acquisition. However Microsoft does not have a very bright corporate
history of acquiring companies. Some of the biggest acquisitions by Microsoft
in its recent history have not fetched shareholder value as promised. At all
top commerce colleges in Delhi NCR the academic community in their lectures
regularly focus on the existence of synergies as a precondition to the success
of mergers and acquisitions. In reality though it is hard to explore and
examine the prospects of synergistic effects in mergers and acquisitions. In
the context of the Microsoft acquisition of LinkedIn we take a look at some of
the indicators of synergies in mergers and acquisitions.
Synergies of Revenue Post
Acquisition
LinkedIn
has a membership base in more than 20 countries and the headcount of members
stands at approximately 433 million. The leading professional networking site
gets 60% of organic traffic from mobile, gets 45 billion quarterly page reviews
and has 7 million active job listings. These figures translate into revenues of
USD 3 billion. LinkedIn has a total addressable market of USD 115 billion and
Microsoft has a total addressable market of USD 200 billion, thereby leading to
a combined TAM of USD 315 billion which represents an increase in TAM size by
58%. This synergy is based on pure arithmetic calculation without taking into
consideration the fact that Microsoft is a cloud services provider but is not
the only one and faces stiff competition from Google. Microsoft offers cloud
services and applications largely to the professional segment but falls short
in terms of product development in apps on account of two reasons. First
Microsoft lacks a solid search engine like that of Google. The fact that Google
search comes built into the Google user account as an application is a huge
stimulant for Google users to stick to Google. Second Microsoft’s Internet
Explorer as a web browser is restricted to being second best worldwide and
still has no answers to Google chrome. Microsoft has recently tried to take the
battle to Microsoft with a corporate statement that the usage of Google chrome
makes the personal computer slow. The use of Google chrome gives a default
option of setting Google search as the home page. This shall continue to bother
Microsoft because of the way in which search engine marketing and search engine
optimization affect the revenue streams from sponsored search results,
advertisements and pay per click dynamics. We are not very sure if Microsoft
has figured that into account while looking for synergies in revenue and TAM
size. To be precise Microsoft as a cloud services enterprise lacks a unique
value proposition and thus does not offer the exclusivity to its users and
hence does not really cater to the obligations of the VRIO(value, rareness,
non-imitability and organizational fit) framework. Where is the non-imitable
value proposition? There are other cloud services users who can still access
LinkedIn although not as an application built into their professional cloud
account. Can Microsoft shut the door on non-Microsoft cloud users for having
access to LinkedIn? There is a serious question to be answered.
Synergies from Organizational
Structures and Staff
The
synergies from the blending of organizational structures and staff deserve a
scrutiny. The corporate statement issued by Microsoft in the aftermath of the
acquisition asserts that LinkedIn will retain its distinct brand, culture and
independence. Jeff Weiner shall remain the CEO of the newly formed company and
report to Satya Nadella while on-boarding the senior leadership team of
Microsoft. It is worthwhile to note that Microsoft had adopted a similar
approach in the last acquisition that it had done. Microsoft had acquired the
mobile division of Nokia and kept the Nokia brand alive for a few months and
then later started production of mobile phones under the brand of Microsoft. Is
LinkedIn a more valuable brand than Microsoft? Should LinkedIn be allowed to
retain its unique brand and culture? How exactly can the staff teams of various
departments be reorganized under the new company that shall be formed? What
should be the proposed organizational structure post acquisition? How shall the
teams of managers and senior executives align goals at the tactical and
operational levels? The management of Microsoft has maintained silence on these
issues. Probably the silence is deliberate and understandable from the point of
view of Microsoft CEO Satya Nadella but demands an answer. How can the staff of
the two companies shed the baggage of history and work together in a reformed
business environment that is being dominated by cloud services? At Ishan
Institute of Management & Technology, one of the top B.Com colleges in
Delhi NCR, we are not apprehensive on this question but are waiting for things
to unfold on the organizational front.
Ishan
Institute of Management & Technology, one of the top B.Com colleges in
Greater Noida is in the process of collecting data and observing the biggest
acquisition deal with interest for academic purposes and aims to introduce a
case study on the same for commerce curriculum.
