Salesforce lost LinkedIn bidding war but made Microsoft pay $4.7 billion more

For all the glorious talk about the future, synergy, and joyous corporate harmony, Microsoft’s successful $26 billion bid for LinkedIn came down to the money and terms.

In a new filing with the U.S. Securities and Exchange Commission, LinkedIn disclosed the history of the acquisition process that at one point involved a total of five players, but ultimately resulted in just two bids.

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Originally, Microsoft offered $160 per share, which would have valued LinkedIn at $21.22 billion. The filing mentions a “Party A” as also making a bid. Salesforce CEO Marc Benioff recently confirmed that was his company.

LinkedIn also approached three other unnamed companies about making a bid, but they all declined.

In any case, Microsoft and Salesforce both originally offered $160 per share. Microsoft made an all-cash bid. Salesforces was a mix of cash and stock.

After several more bids, LinkedIn entered into exclusive talks with Microsoft. But meanwhile, with Salesforce’s stock rising, so too was the value of its bid. At one point, Salesforce called to let LinkedIn know its bid was worth around $200 per share (using a mix of cash and stock).

LinkedIn execs were in a corner, having agreed to talk exclusively with Microsoft. They tried to get the company to bump its offer up to $200, which it refused to do.

Microsoft had other sticking points. It wanted some kind of agreement from LinkedIn cofounder Reid Hoffman to enter into some kind of exclusive “support” agreement with Microsoft. Hoffman refused, worried that it would trigger a clause that would devalue his LinkedIn stock.

Hoffman wanted a mix of cash and stock from Microsoft, in the hopes they could work out a deal to massively reduce the tax bill for shareholders. But eventually, he was OK with an all-cash bid.

Eventually, Microsoft raised its offer to the final $196 per share price that clinched the deal. Salesforce’s mix of cash and stock, though technically higher, was potentially more risky down the road if the stock price fell.

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Later on May 20, 2016, LinkedIn received a revised proposal from Party A for an acquisition of LinkedIn for $85 in cash and a fixed number of shares of Party A common stock which, based on the closing price of Party A’s common stock on May 19, 2016, represented a proposal with a notional value at that time of approximately $188 per share of LinkedIn common stock.

Interestingly, once the subject of the merger came up in early January, the filing doesn’t indicate that LinkedIn did much to try to keep the company independent. It seemed they were ready to do a deal right from the beginning.

It’s worth noting that being in control a majority of shares, Hoffman had sole authority to approve a deal. Still, it will be interesting to see how other shareholders react to word that a $200 bid was on the table.