When Microsoft Corporation (NASDAQ: MSFT) announced on June 13, 2016, it had agreed to purchase LinkedIn Corporation (NYSE: LNKD) for $26.2 billion, investors were immediately reminded of a less-than-stellar string of acquisitions that never lived up to their initial billing. One such example was Microsoft’s purchase of the mobile phone and services divisions of Nokia Corporation (NYSE: NOK) for $7.2 billion, which was finalized in April 2014. The deal was the last made by former Microsoft CEO Steve Ballmer, who was replaced by Satya Nadella in February 2014, two months before the deal closed. Thirteen months later, Microsoft shuttered the phone unit and wrote off $7.6 billion.

For Nadella and Microsoft, LinkedIn represents the third-largest acquisition in the technology sector and comes with an elevated level of pressure to show positive results over the long term. The following are five opportunities that Microsoft sees with its new purchase.

The Office Suite and the Professional Network at LinkedIn

Microsoft’s Office suite of services, with 1.2 billion worldwide users as of March 31, 2016, still dominates the business products and services category. Office 365, which provides cloud-based access to Office applications through a monthly subscription, has 60 million users, while downloads of the Office Mobile app reached 340 million. The integration of LinkedIn’s network of 433 million users pairs a large population of potential new users with applications across the full range of products and services included in Microsoft’s Office suite.

The Social Graph of LinkedIn

In addition to expanding its potential market with LinkedIn’s 433 million users, Microsoft also gains a social media network with a demographic that provides valuable information through social graphs that track professional relationships and interactions between users. The integration of LinkedIn’s social graph with Microsoft’s Office Graph, in addition to providing communication patterns between users, has the potential to deliver detailed user information that can be deployed to tailor highly customized recommendations for products and services.

Access to this network also gives Microsoft an advantage in protecting its business-based products and services from initiatives forwarded by Alphabet Inc. (NASDAQ: GOOG) and Facebook Inc. (NASDAQ: FB). Both companies have products targeting the enterprise sector, but LinkedIn’s de facto standing as the premier professional social network gives it a significant edge.

Cloud Services

Microsoft’s Azure cloud service benefits in two ways from the acquisition. The first being that LinkedIn hosts its website and infrastructure on a private cloud network spread over several third-party facilities while services are provided through leased data centers. The first aspects of LinkedIn’s operation to move to Azure are likely to be at the back-end, including storage, disaster recovery and redundant backup solutions. The acquisition also prevents LinkedIn’s infrastructure and services complex from migrating to one of Microsoft’s key rivals in cloud-based services, Amazon.com Inc. (NASDAQ: AMZN).

A Boost to Microsoft’s CRM Business

Microsoft, which reportedly offered $55 billion for salesforce.com Inc. (NYSE: CRM) in 2015 but could not get the deal done, can elevate its own customer relationship management (CRM) platform, referred to as Dynamics, with LinkedIn’s business-to-business (B2B) sales tools. The integration can also broaden the reach of the Dynamics business management platform by facilitating social selling, recruiting and educational services. The year-over-year (YOY) revenues for LinkedIn’s Marketing Solutions division grew 29% in Q1 2016.

Debt Is Better Than Cash

Microsoft has over $100 billion in cash on the books, but most of it is maintained in offshore accounts. Repatriating $26.2 billion to acquire LinkedIn would have resulted in a 35% tax bite, effectively raising the cost of the purchase by over $9 billion. Instead, Microsoft intends to borrow the funds at a rate afforded to AAA borrowers. In this category, the interest on 20-year debt was 3.17%, as of June 20, 2016. In addition to low borrowing rates, Microsoft can deduct interest paid, lowering the cost further.

Because Microsoft maintains 97% of its cash offshore, Moody’s Investor Service placed the company’s AAA unsecured debt on credit watch for a downgrade due to the relatively low amount of cash held in the United States. If a downgrade occurs, the tax savings generated by keeping the company’s cash offshore could more than compensate any increase in the cost of borrowing funds.

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