Moody’s reviews Microsoft rating for downgrade; S&P affirms

Moody’s Investors Service has put Microsoft Corporation’s rating “under review for downgrade” following its announcement to acquire professional networking platform LinkedIn Corp for USD 26.2 billion in cash.

The review will focus on the strategic fit and monetisation opportunities of LinkedIn with Microsoft’s software offerings, Moody’s said in a statement. “Moody’s Investors Service placed the ‘Aaa’ senior unsecured rating of Microsoft Corporation under review for downgrade following the announcement that the company has agreed to buy LinkedIn Corporation for USD 26.2 billion in cash,” it said.

Meanwhile, Standard & Poor’s has affirmed its ‘AAA’ rating and stable outlook on global software and hardware provider Microsoft. “Our rating affirmation on Microsoft Corp reflects our view that the company’s acquisition of LinkedIn Corp adds to its diversified product portfolio to include a high-growth professional social networking company, despite LinkedIn’s relatively small revenue base, at about 4 per cent of Microsoft’s total revenues,” S&P Global Ratings credit analyst David Tsui said.

S&P said its stable outlook is based on the belief that Microsoft will remain committed to maintaining high credit quality by sustaining its net cash position. “The company has a diverse software and hardware product portfolio and a long track record of maintaining leadership in its Office and Windows operating systems, leading to significant free operating cash flow to meet its acquisition and shareholder return needs.

“The company’s long history of making investment and acquisition decisions in a fiscally prudent manner is a positive factor in determining its credit quality, and we expect that to continue,” S&P Global Ratings said.

Microsoft yesterday announced it will pay USD 196 per share in an all-cash transaction, a 49.5 per cent premium to LinkedIn’s closing price on Friday.

Moody’s said the acquisition could provide meaningful benefits to the ecosystem surrounding Microsoft’s cloud based services platform and LinkedIn’s network that connects professionals, recruiters and companies. “Funding the acquisition entirely with debt, however, will increase Microsoft’s gross debt to EBITDA to approximately 2 times, in excess of 1.5 times leverage Moody’s has previously noted could pressure the rating,” said Moody’s Richard Lane.

In another statement, S&P said it has placed its unsolicited ratings on LinkedIn Corp on “CreditWatch with positive implications”.

“We will resolve the CreditWatch placement once the acquisition is completed and raise our ratings on LinkedIn to the level of those on Microsoft,” S&P said.

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