Salesforce on Tuesday afternoon said the company will pay $27.7 billion in cash and stock to buy workplace collaboration platform Slack.

Why it matters: This is the largest software merger since IBM agreed to buy Red Hat in late 2018, and it creates a cloud giant that can better compete with Microsoft.

Details: Slack shareholders will receive the equivalent of $45.86 per share, including $26.79 in cash, which represents a 55% premium to Slack's trading price before news of the pending deal leaked.

• Slack co-founder and CEO Stewart Butterfield will continue to lead the company.
• The deal is slated to close in the middle of next year, pending Slack shareholder and regulatory approval.
• Shares of Salesforce dipped slightly after Tuesday's announcement, changing hands recently at $233.81, down $7.80, or about 3%. Slack shares were largely unchanged, trading recently at $43.80, down 11 cents, or 0.25%.

Between the lines:

• Salesforce has been eyeing an acquisition that would boost its usage throughout a company versus being limited to specific departments. It previously eyed Twitter and also made a bid for LinkedIn, though Microsoft ended up with the winning offer on that deal.
• Slack has managed to do quite well on its own, but faces increasing competition, especially from Microsoft, which is able to offer its Teams product as part of a larger bundle — something Slack would have trouble doing on its own.

What's next: The deal still needs regulatory approval as well as the official OK from Slack shareholders. Salesforce noted in its press release announcing the deal that it has already secured the support of Slack shareholders, representing 55% of shares.

Go deeper: Salesforce rolls the dice on Slack