Description

Recommendation

We are recommending a long in LinkedIn (LNKD) common shares at current levels ($188/share). We believe that the recently announced acquisition of LNKD by Microsoft will likely close within the next 2-3 months (and as soon as shortly after November 22).  At the acquisition price of $196 per share, this represents an arb spread of 4.3% and an annualized return of 17% to 50%+.

Background

• On June 13, Microsoft (MSFT) announced an all-cash acquisition of LNKD at $196 per share (~$26.2 billion)
•  On August 19, LNKD shareholders approved the acquisition by MSFT.

• ·         The transaction has already been reviewed and cleared unconditionally in the US, Canada and Brazil. 

• ·         LNDK/MSFT is awaiting regulatory approval from the European Commission on Competition, which is expected to rule on November 22.

• ·         In September, Salesforce (CRM) which was rumoured to be interested in acquiring LNKD, sought to block the transaction on antitrust issues.

Discussion

·          Obtaining regulatory approval is the lone major factor to deal closing.  Wwhile predicting EU regulatory rulings is no easy task, we believe that the transaction has a high probability of closing.  At the heart of the matter is LNKD's massive data-set, which Salesforce is complaining that it could provide MSFT with an unfair advantage.  However, judging by fairly recent transactions which included the acquisition of rich data-sets, the EU has approved deals such as GOOG/Doubleclick and Facebook/Whatsapp.  Furthermore, it can be argued that Salesforce never had access to LNKD's datas-set to begin with.

Catalyst

• EU regulatory approval on Nov 22, 2016.
• MSFT acquisition close by year-end.