By Don Clark 

Microsoft Corp. has purchased more than 150 companies. But those acquisitions have been largely overshadowed by deals that didn't get done -- and those that management may have wished didn't.

The best-known transaction that didn't happen was former Chief Executive Steve Ballmer's failed attempt in 2008 to buy Yahoo Inc. for nearly $48 billion. That outcome is now widely considered a lucky break, in view of Yahoo's later struggles.

Now the hotter topic is how Microsoft has fared in deals it did manage to complete, in view of the $26.2 billion transaction for LinkedIn Corp. announced Monday. The record is far from unblemished.

Deals that didn't pay off include the 2014 acquisition of Nokia Corp.'s handset business, which the company has largely dismantled and for which it has taken charges that exceeded the $9.4 billion purchase price.

The company also wrote off much of the value of its 2007 purchase of advertising metrics company aQuantive Inc. for $6.3 billion. And few financial benefits have emerged from some other large deals, including the $8.5 billion purchase of communications service Skype SA and business social network Yammer Inc. in 2012 for $1.2 billion.

"Many of the big deals haven't worked out as planned," said Neeraj Agrawal, a veteran investor in internet companies who is a general partner Battery Ventures. "Their track record is at best mixed."

Asked why, given Microsoft's acquisition history, the latest deal should fare better, Chief Executive Satya Nadella pointed to factors such as the size of LinkedIn's market, its strong growth rate and how closely it is related to Microsoft's software and internet businesses.

"Is this something that's at the core of Microsoft?" Mr. Nadella said during a conference call Monday. LinkedIn "checks all those boxes," he said.

Not all Microsoft acquisitions have fared badly. Some transactions supplied products that became successful or brought key technical or managerial talent into the company, industry executives and analysts say.

In 2014, for example, Microsoft reached a $2.5 billion deal to acquire software maker Mojang, the Swedish company whose "Minecraft" is one of the most popular videogames in history.

Microsoft, under co-founder Bill Gates and later Mr. Ballmer, turned to acquisitions early in its history. Its first operating system, MS-DOS, stemmed from the acquisition of a company called Seattle Computer Products, after International Business Machines Corp. turned to Microsoft for software to run on its personal computer launched in 1981.

In 1987, Microsoft bought Forethought Inc. for $14 million. The startup's PowerPoint software became the most popular way to create presentation slides and later a key part of the company's Office suite of applications.

Another acquisition that seemed to produce benefits was Hotmail, the free internet email service acquired in 1997. Analysts, who at the time estimated the price at $400 million, now see the service as a technical foundation of Microsoft's current online software offerings.

Microsoft's dominance of PC software in the 1990s in some cases made it difficult to complete acquisitions. The company in 1995 dropped a $2.3 billion offer to buy finance software maker Intuit Inc. after the U.S. Department of Justice sued to block the transaction.

But the company in other cases was able to use its financial muscle to buy its way into new markets. One example was its $1.1 billion deal in 2000 for Great Plains Software Inc., an Intuit rival whose programs for accounting, finance, payroll and other chores helped Microsoft reach many more small and midsize businesses.

That business was later combined with that of Navision AS, a Danish software company that Microsoft purchased for $1.3 billion in 2002. Its products remain important to Microsoft, some analysts and former employees say.

As the decade progressed, Microsoft faced greater pressures to play a bigger role on the internet to compete with companies like Google Inc. and Yahoo. Catching up became a major focus for Mr. Ballmer, who succeeded Mr. Gates as CEO in 2000 and gave up the job to Mr. Nadella in 2014.

In targeting Yahoo, Mr. Ballmer launched an unsolicited bid that touched off a set of negotiations that ended when Yahoo demanded more money than he was willing to pay. The bulk of the internet company's roughly $35 billion in market value now comprises its stakes in Alibaba Group Holding Ltd. and Yahoo Japan.

Yahoo at present is auctioning off its core business. Verizon Communications Inc., seen as a front-runner in the bidding, offered about $3 billion for the internet properties before last week's deadline for second-round bids.

In buying Skype, Mr. Ballmer drove to take over a company whose free calling service became so popular that its name had become a verb. Analysts haven't give up hope that Microsoft will build a substantial business from it as Skype is gradually refashioned into a business communications tool.

"The jury's still out on Skype," said David Smith, an analyst at Gartner Inc.

Write to Don Clark at don.clark@wsj.com

 

(END) Dow Jones Newswires

June 14, 2016 02:51 ET (06:51 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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