Reuters/New York
Microsoft Corp plans to buy Internet phone service Skype for $8.5bn in cash, a rich price as it seeks to regain ground on growing rivals such as Google Inc
Microsoft CEO Steve Ballmer (left) shakes hands with Skype CEO Tony Bates after Microsoft’s purchase of Skype in San Francisco yesterday. Microsoft has agreed to buy the popular Internet telephone service for $8.5bn
Microsoft’s interest in the money-losing but popular service highlights a need to gain new customers for its Windows and Office software. Skype has 145mn users on average each month and has gained favour among small business users.
Investors expressed scepticism over the deal, sending Microsoft shares down slightly.
“It doesn’t make sense at all as a financial investment,” said Andrew Bartels, an analyst at Forrester Research. “There’s no way Microsoft is going to generate enough revenue and profit from Skype to compensate.”
The sale marks a big payday for Skype’s owners, online auction site eBay Inc and a group of investors including Silver Lake, the Canada Pension Plan Investment Board and Andreessen Horowitz.
Skype delayed plans for an initial public offering that was expected to value the company at more than $3bn. It had been looking at other options, including tie-ups with Facebook and Google. Such a deal was expected to value Skype at $3bn to $4bn.
The Luxembourg-based company, which allows people to make calls at no charge but has also developed premium services, would give Microsoft a foothold in the potentially lucrative video-conferencing market as businesses shift to lower-cost ways of communicating.
Skype could be combined with Microsoft software such as Outlook to appeal to corporate users, while the voice and video communications could link to Microsoft’s Xbox live gaming.
Longer-term, Skype would offer Microsoft another route to develop its mobile presence, an area it has already put more energy and resources into as PC usage comes under threat.
Skype is set to become a new business division within Microsoft with Skype Chief Executive Tony Bates in charge and reporting directly to Microsoft CEO Steve Ballmer, Microsoft said.
Microsoft shares were down 13 cents, or 0.5%, at $25.70 in early Nasdaq trading.
The Skype deal is the biggest in the 36-year history of the world’s largest software company. It was first reported late on Monday by tech blog GigaOM.
The $8.5bn price tag was a surprise. Although the sum would not stretch cash-rich Microsoft, some said it was high for a company whose ownership has changed several times during its relatively short life.
Skype, which was formed in 2003, was bought by eBay Inc in 2005 for $3.1bn. Last year it had in $860mn in revenue but posted a net loss of $7mn, according to data in its initial public offering filing.
In 2009, eBay sold a majority stake in Skype to the investor group for $1.9bn in cash and a $125mn note. EBay retained about a third.
