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 it 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 13, 2016 17:10 ET (21:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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