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Microsoft’s $19.7 billion deal for Nuance is a steal, however rivals might leap in to supply extra, analyst says 


Microsoft Corp. is making a giant healthcare push with its buy of speech-recognition software program maker Nuance Communications — and the corporate might be getting a discount.

The tech big confirmed Monday that it plans to buy Nuance
NUAN,
+16.21%

for $56 a share in money, with the deal valued at $19.7 billion, together with Nuance’s internet debt. The proposed acquisition, anticipated to shut later this calendar yr, will give Microsoft
MSFT,
+0.48%

entry to Nuance’s instruments for conversational synthetic intelligence (AI) and different intelligence merchandise for the healthcare business.

Nuance shares had been up 17% to $53.32 in latest Monday morning buying and selling, whereas Microsoft shares had been little modified. The deal, which valued Nuance’s inventory at a roughly 23% premium to the Friday closing value, can be the most important for Microsoft since its buy of LinkedIn for greater than $26 billion in 2016.

Microsoft’s plans to buy Nuance had been reported by a number of retailers over the weekend forward of Monday’s official deal announcement. Guggenheim analyst Glen Santangelo commented in a Sunday be aware to purchasers that Microsoft’s curiosity within the firm was “not overly stunning” provided that the businesses had labored collectively on growing “ambient intelligence” merchandise, although he was stunned in regards to the deal value.

A purchase order value for Nuance of $56 a share appeared “comparatively low given all of the alternatives that we consider are forward of [Nuance’s] enterprise,” Santangelo wrote Sunday. He highlighted Nuance’s Dragon Ambient eXperience (DAX) providing, which makes use of synthetic intelligence to gather details about sufferers’ well being points throughout visits.

“Whereas we recognize that that is typically near our [price target] of $58, we might remind traders that our [price target] is on a one-year foundation – and within the context of an acquisition, we might anticipate the corporate to generate a extra substantial premium,” he wrote previous to the official announcement. Santangelo added then that he “wouldn’t rule out the chance a aggressive bidding state of affairs.”

Wedbush analyst Daniel Ives known as the Nuance deal a “trophy” for Microsoft’s administration staff that would sign a higher curiosity in mergers over the approaching months, given the corporate’s reported curiosity in buying chat platform Discord for upwards of $10 billion.

“The Nuance deal is a strategic no brainer in our opinion for Microsoft and suits like a glove into its healthcare endeavors at a time through which hospitals and docs are embracing subsequent era AI capabilities,” Ives wrote in a be aware to purchasers after the deal announcement, whereas reiterating an outperform score and a $300 goal value.

Past healthcare, Ives sees room for Microsoft, which already companions with Nuance, to combine the corporate’s superior speech instruments “all through its client and enterprise ecosystem.”

Microsoft and Nuance stated in a launch saying their deal that Nuance’s “experience will come along with the breadth and depth of Microsoft’s cloud, together with Azure, Groups, and Dynamics 365, to ship next-generation buyer engagement and safety options.”

Microsoft shares have gained 19.4% over the previous three months because the Dow Jones Industrial Common
DJIA,
-0.30%

has risen 8.6%.



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