Microsoft-Salesforce Deal Stalled Over Hefty Price Tag

Salesforce's sky-high price put an end to a multibillion-dollar deal that could have reshaped the enterprise cloud computing market, according to a report.

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Microsoft and Salesforce came fairly close to a deal until the former suffered some sticker shock, according to a new report. Backing earlier reports that Microsoft balked at Salesforce's asking price, effectively ending a possible acquisition, CNBC reported just before the long Memorial Day weekend that the companies were engaged in "significant talks" this spring until they failed to reach an agreement.

On May 5, Bloomberg revealed that the Redmond, Wash., software giant was considering a bid for Salesforce, the leading cloud-based provider of CRM software. At the time, Saleforce had a market cap of nearly $47 billion.

Saleforce wanted much more, according to a televised report from CNBC anchor David Faber.

"Microsoft and did have significant talks earlier this spring about a purchase of Salesforce by Microsoft, said Faber, citing information from sources familiar with the situation. Those talks were fairly involved, advancing "to a level of detail that indicates they were serious," he added.

Microsoft and Salesforce "remain far apart on price" and have not returned to the negotiating table, Faber said, suggesting that any deal between the companies is unlikely to come soon, if ever, despite earlier "strong momentum" during the negotiations.

Microsoft was reportedly willing to offer up to an estimated $55 billion to acquire Salesforce. Meanwhile, Marc Benioff, founder and CEO of Salesforce, kept raising the stakes "and may have gotten as high as $70 billion," according to insiders, said Faber.

Microsoft currently sits on approximately $95 billion in cash, meaning that even at $55 billion—a figure that would have still amounted to the largest software deal of all time—the buy would have meant dipping into a significant portion of its coffers. Faber also said that "there was some discussion of allowing Benioff to roll his 5.7 percent stake in Salesforce into Microsoft stock," changing the deal's calculus somewhat.

A record-breaking amount aside, there were internal pressures at Microsoft that ultimately slammed the brakes on the acquisition.

Faber reported that "there was also a sense that Microsoft's CEO Satya Nadella, who has been in the job for only about 18 months, might be reluctant to pull the trigger on a deal of such size and consequence for his company." Nadella was appointed Microsoft's CEO on Feb. 4, 2014, taking over for Steve Ballmer, who held the position for 14 years.

As the former head of Microsoft's cloud business, Nadella has prioritized the company's portfolio to fit into a "mobile-first, cloud-first" product strategy. So far, the approach appears to be paying off.

Coming off strong fiscal 2015 third-quarter financial results, Nadella announced that Microsoft's commercial cloud business has attained an annualized revenue run rate of $6.3 billion and grew revenues for seven consecutive quarters. "Customers continue to choose Microsoft to transform their business and as a result we saw incredible growth across our cloud services this quarter," said Nadella in a statement.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...