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MICROSOFT CORPORATION

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Microsoft to Buy Nuance Communications for $19.7 Billion -- 2nd Update

04/12/2021 | 10:58am EDT

By Aaron Tilley

Microsoft Corp. has agreed to acquire speech-recognition firm Nuance Communications Inc. for $16 billion, pushing further into health technology and adding to a series of big deals that have widened the range of software tools it offers customers.

The two companies on Monday said Microsoft agreed to pay $56 per Nuance share in the all-cash deal, a 23% premium over Friday's closing price. The companies put the deal value, including debt, at $19.7 billion.

The acquisition is Microsoft's second largest under Chief Executive Satya Nadella after the company spent about $26 billion for professional network LinkedIn Corp. in 2016.

Nuance, based in Burlington, Mass., was a pioneer in speech recognition and artificial intelligence technology. Its software formed the basis of Apple Inc.'s Siri voice assistant before the Cupertino, Calif-based company switched to an in-house version. Nuance has explored a possible sale as far back as 2014, when Samsung Electronics Co. and private-equity firms were seen as the most likely buyers.

Voice assistants have enjoyed growing adoption as consumers have embraced smart devices around their home. Amazon.com Inc. also helped popularize its Alexa voice assistant through its Echo smart speaker and Alphabet Inc.'s Google offered equipment with its version of a virtual helper, called Google Assistant.

Microsoft also has been investing in speech systems for years, though with less success. Last year, Microsoft said it would shift its consumer voice assistant offering, called Cortana, away from trying to compete with Amazon and Google in the consumer market to focus more on supporting the company's business-focused software tools.

Mr. Nadella said the deal reflects a growing demand for tech applications to healthcare, in particular the use of artificial intelligence "This is projected to be one of the fastest-growing infrastructure software revenue streams in history," Mr. Nadella said about Nuance's expertise in clinical documentation.

Nuance has spent years building up its language-processing engine to understand medical terminology, said Gregg Pessin, a senior research director at Gartner Inc.

Mr. Nadella has a record of deal making since he took over the company in 2014. He bought the owner of the Minecraft videogame Mojang AB within months of taking the top job. He followed the LinkedIn acquisition with the purchase of code-collaboration site GitHub for $7.5 billion two years later.

Last year, he attempted to acquire parts of popular short video app TikTok, before talks fell apart. Soon after, Microsoft acquired videogame maker ZeniMax for $7.5 billion, the maker of the popular Doom franchise. The company this year has held talks to acquire messaging platform Discord Inc., The Wall Street Journal reported last month.

"Over the past seven years, we've taken a consistent approach to mergers and acquisitions of all sizes," Microsoft finance chief Amy Hood said on a call presenting the deal. Nuance, she said, should see sales growth under Microsoft.

Nuance has customers in the healthcare, finance and other industries, sectors where many companies use Microsoft products. The two companies in 2019 said they would partner around the use of artificial-intelligent assistants for doctor visits. The healthcare product would be built on top of Microsoft's Azure cloud service, they said at the time.

During the pandemic, as demand for remote healthcare surged, the two companies further increased their ties through the integration of Nuance technology into Microsoft's Teams workplace collaboration software suite, Nuance Chief Executive Mark Benjamin said during the investor call. Mr. Benjamin said that Microsoft's cloud technology will help speed up its ability to reach healthcare customers.

The companies said they aim to close the deal that still requires Nuance shareholder and regulatory approval before year-end.

Microsoft has struck other deals around AI assistants in recent years. In 2018, it acquired Semantic Machines, a startup building conversational artificial intelligence products.

Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

04-12-21 1258ET

Stocks mentioned in the article
ChangeLast1st jan.
MICROSOFT CORPORATION 1.09% 252.46 Delayed Quote.12.28%
NUANCE COMMUNICATIONS, INC. -0.51% 52.81 Delayed Quote.19.78%
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Financials (USD)
Sales 2021 166 B - -
Net income 2021 59 402 M - -
Net cash 2021 62 554 M - -
P/E ratio 2021 32,3x
Yield 2021 0,87%
Capitalization 1 901 B 1 901 B -
EV / Sales 2021 11,1x
EV / Sales 2022 9,77x
Nbr of Employees 163 000
Free-Float 99,0%
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Number of Analysts 42
Average target price 294,12 $
Last Close Price 252,46 $
Spread / Highest target 34,7%
Spread / Average Target 16,5%
Spread / Lowest Target 0,37%
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Managers and Directors
NameTitle
Satya Nadella Chief Executive Officer & Non-Independent Director
Bradford L. Smith President & Chief Legal Officer
Amy E. Hood Chief Financial Officer & Executive Vice President
John Wendell Thompson Independent Chairman
James Kevin Scott Chief Technology Officer & Executive VP
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