Twitter Jumps as Microsoft-LinkedIn Deal Could Spur More

Will Microsoft, LinkedIn Deal Spur More Mergers?
  • Deal for $26 billion may put struggling social network in play
  • Stocks of Twitter, LinkedIn had been down so far this year

Twitter Inc. jumped after Microsoft Corp.’s $26.2 billion agreement to buy LinkedIn Corp. prompted speculation other technology companies may become acquisition targets.

Twitter ended the day up 3.8 percent to $14.55 in New York after rising as much as 9.1 percent earlier. The social network’s stock had dropped 39 percent this year through Friday as investors questioned whether the struggling company can broaden its appeal to people who don’t already use the service.

LinkedIn had fallen this year, too, on similar investor concerns that its pace of growth was slowing. Microsoft is paying a 49.5 percent premium for the business-focused social network. The deal gives the market a sense of what larger, older technology companies may be willing to pay for younger ones like Twitter or Yelp Inc., James Cakmak, an analyst at Monness Crespi Hardt & Co., said in an interview.

“It definitely puts these companies more into play now because what we’re seeing is concrete evidence of how important data, users and owning a component of time spent are,” Cakmak said. “I would rank Twitter near or at the top of that list.”

Theoretically, Google parent Alphabet Inc. would be the most obvious acquirer of Twitter, Cakmak said.

The focus at Twitter is on “innovating and improving the product,” Omid Kordestani, Twitter’s executive chairman, said at the Bloomberg Technology Conference Monday. “Whatever may play out,” management would evaluate it, Kordestani said. adding that the company is taking a longer-term view on results.

Social networks like LinkedIn, Twitter and Yelp have grown massive communities of people who use the websites to connect with professional contacts, friends and businesses. As the rapid pace of growth slows at these companies and questions linger about their ability to improve profitability, their valuations have come down.

Analysts at Goldman Sachs Group Inc. said in a note last week that the market for mergers and acquisitions was “healthier than headline volumes suggest.”

In a note written before this morning’s big deal, Goldman analysts led by Jessica Binder added LinkedIn, T-Mobile U.S. Inc., TripAdvisor Inc., and Twitter to the bank’s proprietary basket of companies that it believes have at least a 15 percent chance of seeing "strategic" M&A action in the next 12 months.

Etsy Inc. gained 1.4 percent to $9.57 while GoDaddy Inc. jumped 2.5 percent to $32.45. The Nasdaq Composite Index fell 0.9 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE