June 4, 2018 / 1:08 PM / 5 months ago

Microsoft to take on Amazon with $7.5 billion GitHub deal

(Reuters) - Microsoft Corp (MSFT.O) said on Monday it would buy privately held coding website GitHub Inc for $7.5 billion in an all-stock deal to beef up its cloud computing business and challenge market leader Amazon.com Inc (AMZN.O).

The deal is a big bet on Azure, the company’s fast-growing cloud business, as it will be able to lure more code developers who use GitHub and drive more business to Microsoft.

By pulling off its largest acquisition since the $26 billion acquisition of LinkedIn in 2016, Microsoft gets a platform universally known by developers. GitHub calls itself the world’s largest code host with more than 28 million developers using its platform.

After reports of a likely deal between Microsoft and GitHub emerged on Sunday, some users of the software development platform raised doubts on social network Reddit here that GitHub would "eventually favor Microsoft products over competing alternatives."

But Chief Executive Officer Satya Nadella downplayed those concerns by saying on a conference call that GitHub will continue to be an open platform that works with all public clouds.

FILE PHOTO: A Microsoft logo is seen a day after Microsoft Corp's $26.2 billion purchase of LinkedIn Corp, in Los Angeles, California, U.S., on June 14, 2016. REUTERS/Lucy Nicholson/File Photo - RC17B8BED5A00

He said Microsoft will use GitHub to promote company’s own developer tools and use its sales team to speed up adoption of GitHub by its big business customers.

The deal reflects the company’s ongoing pivot to open source software and seeks to further broaden its large and growing development community, Moody’s analyst Richard Lane said.

It’s also a smart move by Microsoft, which has seen scorching growth in its cloud business over the past few years. Azure posted a 93 percent jump in revenue in the third quarter ended March 31.

Last year, the software giant shut down CodePlex, its own rival for GitHub, saying the latter was the dominant location for open source sharing and that most such projects had already migrated there.

After closing the acquisition, expected by the end of the calendar year, GitHub will become a part of Microsoft’s Intelligent Cloud unit.

Microsoft’s Nat Friedman will take over as the Chief Executive Officer of San Francisco-headquartered GitHub, whose current CEO Chris Wanstrath will become a Microsoft technical fellow.

On an adjusted basis, Microsoft expects the deal to add to its operating income in fiscal 2020 and reduce earnings per share by less than 1 percent in 2019 and 2020.

Microsoft shares rose nearly 1 percent to hit a record high of $101.79.

Additional reporting by Supantha Mukherjee in Bengaluru and Salvador Rodriguez in San Francisco; Editing by Arun Koyyur

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