MSFT Microsoft Corporation

By Jay Greene 

Persistent bidding from Salesforce.com Inc. forced Microsoft Corp. to boost its offer for LinkedIn Corp. 22%, or roughly $5 billion, during the two months of negotiations, according to a regulatory filing by the professional social network and a person with knowledge of the matter.

The software giant ultimately agreed to buy LinkedIn last month for $26.2 billion, or $196 a share in cash. That was a 50% premium over LinkedIn's stock price before the deal's announcement.

A Securities and Exchange Commission filing by LinkedIn on Friday disclosed that Microsoft submitted on May 4 a nonbinding indication of interest to acquire LinkedIn at $160 a share in cash. Nine days earlier, another company, described by LinkedIn as "Party A," submitted its own nonbinding indication of interest to buy the company for $160 to $165 a share in a mix of cash and stock.

The Wall Street Journal and other publications previously reported Salesforce was the second bidder for LinkedIn. The person familiar with the matter confirmed Salesforce is Party A.

The bid from Salesforce put pressure on Microsoft to boost its offer several times. Even after LinkedIn entered an arrangement to negotiate with Microsoft exclusively, Salesforce persisted on pushing its bid. And as its stock price climbed, the value of its offer grew as well, leading LinkedIn executives to press Microsoft for more money.

LinkedIn also disclosed that a third company, which it described only as "Party B," also entered into a confidentiality agreement to consider buying the company after its brass met with LinkedIn Chief Executive Jeff Weiner and LinkedIn controlling shareholder and Chairman Reid Hoffman. As the first bids rolled in in early May, Party B withdrew without making an offer, saying it was interested only in teaming up with LinkedIn.

After Microsoft and Salesforce submitted their initial offers May 6, LinkedIn notified the two companies that it would enter into exclusive negotiations with either bidder if it raised its offer to $200 a share. Neither company did so. That began a bidding war that forced Microsoft to keep pace with Salesforce's steadily increasing stock price, leading ultimately to Microsoft's generous winning offer.

Three days later, Mr. Hoffman met with Bill Gates, Microsoft's co-founder and a company director, in a previously scheduled appointment. The pair discussed the "potential benefits to Microsoft of potentially acquiring LinkedIn," according to the filing. They also chatted about Mr. Hoffman's potential involvement following an acquisition, "including, among other things, his possibly serving on Microsoft's board of directors."

The same week, Salesforce revised its bid to $171 a share in cash and stock, while Microsoft raised its offer to $172 a share in cash. Both bidders said that they preferred not to participate in an auction but wanted LinkedIn to give guidance to an acceptable price.

On May 12, LinkedIn told both companies to submit "best and final offers" by the following afternoon. Mr. Hoffman called Microsoft Chief Executive Satya Nadella to say that he would "personally support" a bid from Microsoft at $185 a share or more if the LinkedIn board selected Microsoft as the winning bidder.

On May 13, Microsoft bid $182 a share in cash, but offered to make a cash and stock offer if LinkedIn preferred. Salesforce offered $182 a share as well, comprising $85 a share in cash and the remainder in its stock. Both proposals requested that LinkedIn negotiate on an exclusive basis.

Later that day, LinkedIn's board chose the Microsoft bid and, a day later, entered into an exclusive agreement with the company.

That didn't stop Salesforce, though. Over the following month, as LinkedIn and Microsoft hammered out a deal, Salesforce submitted revised proposals. The offers weren't dramatically different. But Salesforce's climbing share price boosted the value of its overall bid. Nonetheless, LinkedIn determined that it couldn't respond to Salesforce's offer because of the exclusivity agreement.

On June 5, Salesforce tried one more time, increasing the number of shares in its cash-and-stock bid, making for a total value of a $200 a share. LinkedIn didn't respond. But the company told Mr. Nadella on June 7 and again on June 8 that Microsoft's $182 a share bid "was no longer supportable" and encouraged Microsoft to boost its offer to $200 a share.

At that point, Mr. Nadella told Mr. Weiner that the companies would need to discuss "cost synergies in the transaction" for Microsoft to raise its bid. That led LinkedIn's chief financial officer Steven Sordello to send Amy Hood, his counterpart at Microsoft, "an analysis of potential cost synergies arising from the combination," according to the filing. The filing didn't disclose what those cost synergies are.

That was enough to convince Microsoft on June 10 to lift its offer once again, this time to $190 a share in cash. Later that day, Mr. Weiner told Mr. Nadella that the board would support a bid for $196 a share in cash. On Saturday, June 11, Mr. Nadella agreed, and the companies signed a deal. The companies announced the news two days later before the stock market opened.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

July 01, 2016 22:15 ET (02:15 GMT)

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