MSFT-LNKD ACQUISITION

CAM BROWN -
WILLIAM TANGGUH - 450422203
MARINA ARMANIOUS -
DANIEL MOONEY -
STAND-ALONE VALUATION

DCF-Sales-Driven Method
Forecast Horizon: 5 Years (FY16 FY20)
DCF Final Price for LNKD: $127.38 MSFT: $68.82
LINKEDIN DCF ASSUMPTIONS

Freemium business model & monetizing additional services/features/solutions

Marketing Solutions Revenue 45% Y.o.Y Growth
Premium Subscriptions Revenue 40% Y.o.Y Growth
Talent Solutions Revenue 55% Y.o.Y Growth
Other line items Average of 3 years of past performances
Strong past performance growth
Strong Industry forecasts on each revenue segment
LINKEDIN PRICING

Tax rate 25%

Average between statutory and FY14 Effective Tax Rate
TGR 2.1% (Applies to MSFT)
Average of US Real GDP Growth FY15-20 (Euromonitor)
Final Price: $127.38
MICROSOFT DCF VALUATION

Top-line Revenue Growth: 5.5% FY16 down to 4.1% in FY20

Long-Term Debt & Effective Tax Rate:
Potential Merger with LinkedIn, Expected to issue more LT debt
Tax deductible, therefore will be using a tax rate of 20%
Other Line Items: Average of the past 3 years of performance
WACC: 6.69%
TGR: 2.1%
Final DCF price MSFT: $68.82
OFFER PRICE, SYNERGIES AND CONTROL PREMIUM

Triangulation between Transaction Multiple (20%) and Optimal LNKD DCF

(80%)
DCF weighted higher due to the ability to incorporate private information
Optimal DCF for LinkedIn for calculation of Operational synergies
To exclude the Control Premium effect
Final offer price: $199.84
OFFER PRICE, SYNERGIES AND CONTROL PREMIUM

Synergy calculation:
Combined FCFF
Un-lever beta to calculate Combined WACC
Combined WACC: 6.92%
The combined firm value resulted in a synergy value of $11.8bn
LinkedIn Control Premium
Driven by Higher Revenue Growth but not lower OPEX&COGS due to management plans to
keep at fixed as % of revenue.
Resulted in Control Premium of $5.3bn
CONCLUSION

Is the merger worth ?

Our Model: $199.84 Real-Offer Price: $196