LinkedIn 2013 Annual Report Download - page 89

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3. Acquisitions and Joint Venture
Fiscal 2013 Joint Venture
On November 3, 2013, the Company entered into an agreement to create LinkedIn CN Limited, a
joint venture (‘‘JV’’) with Dragon Networking, an affiliate of China Broadband Capital, and SCCV IV
Success HoldCo, Ltd., an affiliate of Sequoia Capital, (collectively, the ‘‘Partners’’) to engage in the
investment, organization, management and operation of a professional social network in the People’s
Republic of China (‘‘PRC’’). As of December 31, 2013, the Company owned approximately 93% of the
outstanding equity interests in the JV in the form of common shares by contributing intellectual property.
The Partners contributed $5.0 million in cash in exchange for 7% of the outstanding equity interests in the
form of preferred shares. Pending the occurrence of certain events, the Partners have the opportunity to
contribute an additional $20.0 million in cash in exchange for equity interests in the form of preferred
shares (‘‘Second Closing’’), at which point the Company and the Partners would own approximately 72%
and 28% of the outstanding equity interests in the JV, respectively.
The preferred shares may be callable or puttable, generally at fair value, subject to a floor and cap,
following the fifth anniversary of the Second Closing or at the occurrence of certain events.
The Company has determined it is the primary beneficiary of the JV due to the percentage
ownership as well as the power to direct the activities that most significantly impact the JV’s economic
performance. Furthermore, the Company has the right to receive benefits and obligation to absorb losses
from the entity. The liabilities of the JV are recourse solely to JV’s assets, except for as it relates to a
guarantee made by the Company to the JV in the event that the JV cannot fulfill the liability resulting
from the exercise of the put right by the Partners.
The noncontrolling interest in the JV is classified outside of permanent equity in the Company’s
consolidated balance sheet as of December 31, 2013, as the preferred shares include a put right available
to the noncontrolling interest holders in the future. Earnings attributable to the noncontrolling interest on
the Company’s consolidated financial statements include the accretion to the redemption value and were
not material for any of the periods presented.
Fiscal 2013 Acquisition
On April 17, 2013, LinkedIn completed its acquisition of Alphonso Labs, Inc. (‘‘Pulse’’), a San
Francisco, California-based privately held leading mobile news reader and content distribution platform.
LinkedIn’s purchase price of $47.6 million for all the outstanding shares of capital stock of Pulse consisted
of $6.7 million in cash and 225,882 shares of LinkedIn Class A common stock. LinkedIn also issued 9,182
stock options related to assumed Pulse equity awards. The fair value of the earned portion of assumed
stock options of $0.3 million is included in the purchase price, with the remaining fair value of
$1.2 million resulting in post-acquisition compensation expense that will be recognized over the requisite
service period of approximately three years from the date of acquisition.
The acquisition has been accounted for as a business combination under the acquisition method and,
accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the
liabilities assumed based on their respective fair values on the acquisition date. Pulse’s results of
operations have been included in the consolidated financial statements from the date of acquisition. To
retain the services of certain former Pulse employees, LinkedIn offered nonvested Class A common stock
that will be earned over three years from the date of acquisition. As these equity awards are subject to
post-acquisition employment, the Company is accounting for them as post-acquisition compensation
expense. In connection with these post-acquisition arrangements, the Company issued 244,601 shares of
nonvested Class A common stock with a total fair value of $44.0 million.
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