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4 ETFs Riding on Microsoft-LinkedIn Merger News

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The technology sector is in the spotlight as the world's largest software maker Microsoft MSFT has agreed to acquire the professional social networking firm LinkedIn LNKD in all-cash deal worth $26.2 million. This would be one of the largest acquisitions in the history of the technology industry and the biggest ever by Microsoft.

The move came as part of Microsoft CEO Satya Nadella's efforts to push the company into the mobile and cloud computing world from the traditional software space.

Microsoft-LinkedIn Deal in Detail

As per the terms of the deal, Microsoft will pay $196 per share in cash, reflecting a 49.5% premium to the LinkedIn stock price of $131.08 per share at the close on June 10. The transaction - expected to be completed by the end of the year - has already been approved by the board of directors of both companies and is seeking approvals from LinkedIn shareholders and regulators (read: Will Microsoft Earnings Cast a Cloud Over These ETFs ).

As per Nadella, the combination of Microsoft's Internet services and the world's leading professional network could create magic. It should take Microsoft offerings beyond the software platform and add a new revenue stream in the field of social networking services and professional content. The proposed acquisition will enlarge the potential market size of Microsoft's productivity and business-process segment to $315 billion, up from $200 billion currently.

While the transaction is expected to dilute Microsoft's non-GAAP earnings per share by a minimal 1% for the remainder of fiscal 2017 and fiscal 2018, it would be accretive to non-GAAP earnings per share in fiscal year 2019 or less than two years after closing.

Investors should note that the deal could pave the way for other technology companies like Twitter TWTR to become acquirees (see: all the Technology ETFs here ).

Market Impact

Following the announcement of the deal, shares of LinkedIn jumped 46.6%% on the day and the stock crushed its average volume as nearly 26.5 million shares moved hands compared with 2.7 million on average. On the other hand, MSFT shares dropped 2.6% at the close on the day on elevated volumes of 83.2 million compared with 28.8 million on average.

The news has put the spotlight on a number of ETFs that have the largest allocation going to the target firm LinkedIn. Investors should keep a close eye on the movement of these ETFs over the coming weeks:

Global X Social Media Index ETF SOCL

This fund is the pure play in the global social media space and has amassed $60.8 million in its asset base. It charges 0.65% in fees and expenses, and sees moderate trading volumes of roughly 45,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 31 securities in the basket. Of these firms, LinkedIn takes the top spot, making up roughly 15.3% of assets. In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China (24%), Russia (8%) and Japan (7%). The fund climbed about 4% on the day following the merger announcement and has a Zacks ETF Rank of 2 or 'Buy' rating with a High risk outlook (read: Follow Social Media ETF on Strong Earnings ).

VanEck Vectors Morningstar Wide Moat ETF MOAT

This fund provides an equal weighted exposure to the 21 most attractively valued securities having sustainable competitive advantage by tracking the Morningstar Wide Moat Focus Index. Here, LNKD takes the third spot at 5.2%. The product is skewed toward healthcare sector at 39.7% while financials and technology round off the next two spots with a double-digit exposure each. The fund has amassed $673 million in its asset base while trades in good volume of around 108,000 shares. It charges 49 bps in annual fees and added 1.6% on the day.

ARK Web x.0 ETF ARKW

This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure from hardware and software to cloud. The fund holds 35 stocks in its basket with LinkedIn taking the eight position with a 4% share. From a sector look, Internet & mobile applications as well as software & programming collectively make up for nearly half of the portfolio while Internet & catalogue retail and semiconductors round off the next two spots with a double-digit exposure each. The ETF has amassed $13.1 million in its asset base and trades in a paltry average daily volume of 2,000 shares. The expense ratio comes in at 0.75% and the ETF gained 3.1% on the day of the merger news (read: Forget Big Tech, Focus on These ETFs Instead ).

ARK Industrial Innovation ETF ARKQ

This is also an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 37 stocks, with LNKD occupying the fifth spot at 4%. The product has accumulated $14.3 million in its asset base and charges 75 bps in fees per year. It has a paltry daily volume of about 1,000 shares and added 0.5% on the day.

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MICROSOFT CORP (MSFT): Free Stock Analysis Report

LINKEDIN CORP-A (LNKD): Free Stock Analysis Report

TWITTER INC (TWTR): Free Stock Analysis Report

GLBL-X SOCL MDA (SOCL): ETF Research Reports

ARK- WEB XO ETF (ARKW): ETF Research Reports

VANECK-MS WD MT (MOAT): ETF Research Reports

ARK-INDUS INNOV (ARKQ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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