Microsoft purchase of LinkedIn
Accounting Changes after Acquisitions
May 25, 2018
Microsoft purchase of LinkedIn: Accounting Changes after Acquisitions
LO1. Understand how accounting changes after an acquisition in the context of accounting changes covered by ASC 250 “Accounting Changes and Error Corrections.”
LO2. Distinguish between “changes in accounting entity”, which are covered in ASC 250, and accounting changes after acquisitions, which are covered in ASC 805 “business combinations.”
LO3. Understand that the acquiring company (Microsoft) includes acquiree (LinkedIn) revenue beginning on the acquisition date (December 8, 2016).
LO4. Understand that Microsoft does not restate prior periods to include LinkedIn’s revenue.
LO5. Understand Microsoft’s footnote disclosures of LinkedIn revenue.
LO6. Identify Microsoft’s footnote disclosure with the requirements in ASC 805 “business combinations.”
LO7. Calculate and analyze Microsoft’s revenue growth including LinkedIn.
LO8. Calculate and analyze Microsoft’s revenue growth excluding LinkedIn.
LO9. Calculate and analyze LinkedIn’s revenue growth as a Microsoft subsidiary.
LO10. Understand what Microsoft meant when it said that the acquisition is expected to be accretive to non-GAAP earnings within two years.
Microsoft Acquisition of LinkedIn
On June 13, 2016 Microsoft and LinkedIn announced that the two companies agreed on a friendly acquisition of LinkedIn by Microsoft. In an interview, Microsoft CEO Satya Nadella said that he long admired LinkedIn and had been contemplating an acquisition for a long time. LinkedIn founder Reid Hoffman also supported the acquisition and eventually joined Microsoft’s board. In its press release announcing the acquisition, Microsoft made it clear that it was buying LinkedIn for its long term strategic potential, rather than for its immediate contribution to the bottom line:
Microsoft expects the acquisition to have minimal dilution of ~1 percent to non-GAAP earnings per share for the remainder of fiscal year 2017 post-closing and for fiscal year 2018 based on the expected close date, and become accretive to Microsoft’s non-GAAP earnings per share in Microsoft’s fiscal year 2019 or less than two years post-closing.