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This is Microsoft’s second biggest acquisition following its takeover of LinkedIn which it acquired for US$26 billion towards the end of 2016.

Microsoft (NASDAQ:MSFT) on Monday (June 4) announced that it has reached an agreement to acquire GitHub for US$7.5 billion in stock.

GitHub was founded in 2007 and is a software development platform that has accumulated more than 28 million software developers to its platform..

The two companies will help developers accelerate enterprise use of GitHub and bring Microsoft’s developer tools and services to new audiences.

This is Microsoft’s second biggest acquisition following its takeover of LinkedIn which it acquired for US$26 billion towards the end of 2016.

“Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation,” Satya Nadella, CEO, Microsoft said in the press release.

Microsoft will use a portion of the US$30 billion of its current share repurchase authorization for the purchase. The transaction is expected to be completed before the end of 2018 and upon closing, Microsoft expects GitHub’s financials to be reported as part of the Intelligent Cloud segment.

Further, the company expects the acquisition will be accretive to operating income in fiscal year 2020 on a non-GAAP basis and to have minimum dilution of less than one percent to earnings per share in fiscal years 2019 and 2020.

“Over the past four years, you’ve seen our consistent approach to mergers and acquisitions of all sizes. We focus on structurally growing markets aligned to our strategic priorities where we can add unique value to the users or the community, and at a price that supports the long-term shareholder value creation. GitHub, certainly, meets those criteria,” Amy Hood, Microsoft CFO said in the media conference call.

The companies said that GitHub will retain its developer-first ethos and will operate independently to provide an open platform for all developers in all industries.

Microsoft’s corporate vice president Nat Friedman, founder of Xamarin and an open source veteran, will assume the role of GitHub CEO while GitHub’s current CEO Chris Wanstrath will become Microsoft technical fellow.

Following Monday’s announcement, GitHub’s rival, GitLab said in a tweet that more users have started to switch to their service.

Shares of Microsoft was up 0.87 percent during Monday’s trading period and closed at US$101.67. The stock has a strong buy ranking on TipRanks with an analyst target price of $111.06. Oppenheimer analyst Timothy Horan maintained a ‘Buy’ rating on Microsoft and set a target price of $115.

“We view this acquisition as critical to MSFTs hybrid cloud strategy, just as important as LinkedIn. Developers are the key to creating global platforms and network effects,” Horan said. “The acquisition supports Microsoft’s strategy of being the platform for intelligent cloud/edge; which needs to be open sourced and support any operating system/device.”

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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.

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