Stocks finished the day little-changed on Monday as the big news was Microsoft’s $26.2 billion play to acquire professional networking site LinkedIn.
- Dow: 17,738, -126, (-0.7%)
- S&P 500: 2,079, -17, (-0.8%)
- Nasdaq: 4,848, -46, (-0.9%)
- WTI crude oil: $48.50, -1%
- 10-year Treasury: 1.61%
On Monday morning, Microsoft announced it would acquire professional networking site LinkedIn for $196, or $26.2 billion in the biggest company-for-company tech buy since HP and Compaq got together back in 2001. Following the news, shares of LinkedIn rose about 46% to around $193 per share.
Microsoft shares fell about 2.5% on the news.
The deal is expected to see Microsoft and LinkedIn mostly operate as independent entities — the Facebook-WhatsApp model was name-checked — with LinkedIn CEO Jeff Weiner keeping that post at the company. The deal is expected to be completed this calendar year.
Here’s what Microsoft CEO Satya Nadella had to say to the company following the deal; and here’s Weiner’s outlook.
Wall Street was broadly positive on the deal, though Randle Reese at Avondale Partners said LinkedIn’s customers likely won’t be happy with the deal. Mark May at Citi said that for Microsoft this deal makes sense strategically, adding that, “LinkedIn has, for some time, been the ‘Outlook address book’ for most business professionals. There are likely new ways Microsoft can integrate/extend this franchise by owning it.”
There were also three investments banks involved that will reap big fees, though notably only one of these firms — Morgan Stanley — is a household name. Boutique firms Qatalyst and Allen & Co. served as LinkedIn’s advisors.
Other Wall Street analysts argued the deal is good news for Pandora, while Twitter shares jumped as much as 7% following the news as markets perhaps read Microsoft’s move as a sign the tech space could be ready for some serious M&A activity. Twitter, of course, is everyone’s favourite example of a company that somebody, anybody, should buy. Because why not.
Goldman Sachs, for its part, thinks these are the three tech companies most likely to be acquired next: Acacia Communications, Lumentum, and Cornerstone OnDemand.
Of the course the instant read on any massive merger is that it’s the sign of a top.
This is still one of my favourite charts in recent history.
Stocks have been flat for the two years since this news, more or less, and you can just draw an arrow to Monday’s announcement and make the same argument. Leaving out the Rupert Murdoch part, duh.
Over at Bloomberg View on Monday, Conor Sen argued this deal isn’t indicative of a tech bubble forming. I’d agree!
Conor’s argument centres, really, on the use of cash over stock to consummate the deal. Things are really euphoric when companies are allowed to use their stock as a de facto currency to acquire rivals at inflated prices. Cash, however, is the real thing.
(To finance the deal, Microsoft will be issuing a bunch of debt and might lose its AAA rating as a result. Of course, interest expense is tax deductible. So.)
But while perhaps not indicating a bubble in the tech sector, Monday’s deal certainly makes clear the latest phase of tech innovation is at the very least mature. Apple held another event on Monday, announced a bunch of things, and it was like kind of exciting but we’ve been doing these presentations at least once a year for what, a decade now?
Forgive me for feeling like I’ve seen it all.
This acquisition also goes back to Marc Andreessen’s idea that software is eating the world because, well, Microsoft just spent $26 billion on software. And we’re very likely not done seeing this theme play out. Bubbles require unbridled enthusiasm to form. People are not that excited about tech right now. Ergo, we’re not in a bubble. But what it seems like we are seeing is not so much a bubble popping as a paradigm shifting, then.
The next iPhone, as a piece of hardware, isn’t that exciting. And the public isn’t going to get all that excited about the streamlined business-to-business software offerings Microsoft and LinkedIn might now bring to the table. But it’s this second thing that is happening now. Boring, sure. And different too. But yeah, no, not a bubble.
The UK referendum on staying in the European Union or leaving is now just 10 days away.
I am getting excited!
On Monday, we got the latest poll from The Guardian showing the ‘Leave’ camp is up 53-47 on the ‘Remain’ camp, bucking conventional wisdom that has long held the ‘Remain’ (think of this as a version of the Hillary Clinton over Donald Trump choice in the US: the sensible, “rational” decision) would eventually win the day.
Betting markets, for their part, have long given the ‘Remain’ camp a solid advantage. But even now the tide there is starting to turn, with Betfair giving the ‘Leave’ camp a 35% chance of winning, up from just 22% a week ago. It’s like the market-implied odds of a Fed rate hike in June or July — except the complete opposite.
Also in notable Brexit commentary, influential economics commentator Ambrose Evans-Pritchard outlined a detailed case that, at least in economics blogging circles, was widely received as the “best case yet” for voting to leave.
So anyway, the great thing about votes — as my former colleague Joe Weisenthal once said — is that they eventually happen. There are polls and there are pundits but eventually citizens turn out to the polls, decide, and then we have an answer.
If the UK votes to leave the EU it will not be an overnight shift. If they vote to remain, surely some will be disappointed. But the best part is that in 10 days this actually happens. And then we can sort of stop talking about it.
I love a good strong take in a piece of Wall Street research.
Enter Andrew Lapthorne, head of quantitative analysis at Societe Generale, calling for the “death of investment.” Not, as you might think, capital investment or investment in employees or something. No, this is just regular-old investing in financial assets.
In the note, Lapthorne tracks the 20-year return for a portfolio consisting of 50% global stocks pegged to the MSCI World index, 40% government bonds, 5% cash, and 5% corporate bonds with an initial investment of $100,000. In his opinion, “the outlook is dire ” for buy-and-hold investors who are trying to generate money for retirement.
“If you invested today for 20 years the after cost excess return might be $21,800 (today’s yield on a balanced portfolio is just 199 [basis points] minus 100 [basis points]) versus $60,000 if you invested 10 years ago – and a $150,000 30 years ago,” Lapthorne wrote.
Basically, the amount of money that investors can expect to make from their nest egg has been deteriorating over the past 30 years, and the trend doesn’t look to improve. Lapthorne highlighted this in a chart showing the returns over time, and it’s moving in an ugly direction.
Another favourite subject of mine is “retail is hard.” This is a topic that provides for almost endless discussion because retail is hard. Speaking with Business Insider recently, Christian Magoon — the CEO of Amplify ETFs which just launched a fund aimed at tracking companies that get most of their sales online — said the problem with traditional retail models comes down to three things:
- Labour costs are rising
- Physical stores are expensive
- Retailers don’t have the flexibility to be unprofitable
The first point is sort obvious. The second point, too. The final point is, well, sort of just an excuse. Amazon is very slightly profitable though has long-stated this is not the goal. The goal is to acquire customers, keep them inside the Amazon family of services, and then offer more of those.
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