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Bidding war drove up Microsoft’s LinkedIn bill

A bidding war with Salesforce.com forced Microsoft to pay nearly $6 billion extra to seal its planned takeover of LinkedIn last month, according to new details released on Friday.

The contest eventually led Salesforce to offer $500 million more than Microsoft, at least on paper, though its cash-and-stock offer was heavily dependent on its own share price, in contrast to the all-cash bid from the software company.

A month-long back-and-forth between the two rivals pushed the value of the all-cash deal to $26bn, making it the third-largest acquisition in the tech industry.

Details of the frenzied bidding were revealed in a regulatory filing that LinkedIn made with the Securities and Exchange Commission ahead of a shareholder vote to approve the deal.

The high price that Microsoft ended up paying could now lead to deeper cost-cutting at LinkedIn after the deal is completed. Microsoft chief executive Satya Nadella warned Jeff Weiner, his counterpart at LinkedIn, during the bidding that "a discussion of cost synergies in the transaction would be necessary" as Microsoft pushed its offer higher.

The seeds of Microsoft's giant bid were sown on 16 February, only 12 days after the professional networking site shocked Wall Street with a disappointing earnings report that wiped more than 50 per cent off its stock price. The idea of an acquisition was raised in a meeting between Mr Weiner and Mr Nadella, according to the report, though it did not disclose who broached the idea.

It was only a month later, after two other, unnamed companies approached LinkedIn about possible bids, that Reid Hoffman, the company's chairman and controlling shareholder, went back to Mr Nadella to ask if he was interested in making an offer.

Four companies in all expressed potential interest in an acquisition though two dropped out before bidding began, according to the filing. It did not identify Salesforce by name, but Marc Benioff, the company's CEO, has said that he was involved in the bidding for LinkedIn.

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Microsoft's opening "indication of interest" envisaged a price of $160 a share in cash. It later won the right to exclusive negotiations with LinkedIn after lifting its offer to $182, making it look like a deal was close.

However, a 10 per cent jump in Salesforce's share price during a 12-day period in mid-May boosted the value of its rival offer and forced a renewed round of negotiations. Microsoft finally clinched a deal with an offer of $196 a share, compared to the notional $200 a share value of the Salesforce cash-and-stock offer.

The bidding war boosted the premium that Microsoft paid for LinkedIn from 22 per cent to 50 per cent, eventually making up for the losses seen since the company's February stock price collapse.

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