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Microsoft buys Skype for $8.5 billion in cash

by Jorge Hernandez on May 10, 2011

In the largest Microsoft deal in history, the company has agreed to pay $8.5 billion in cash to acquire Skype, the online communications platform that allows people to video chat across continents.

Skype's Chief Executive Tony Bates will become the Microsoft Skype Division president, according to a new report from the Wall Street Journal. He will work under Steve Ballmer, the Chief Executive of Microsoft.

Skype's net profits have been scant in its eight year history, according to the news source. As of December 31 of last year, Skype had long-term debt of $686 million, a revenue of $860 million, with operating profits of $264 million and losses of $7 million.

Previously, eBay had also bought Skype for $2.6 billion in 2005, but the acquisition was a failure. eBay sold 70 percent of the company to various investors including Silver Lake Partners, Andreessen Horowitz and Index Ventures.

It is believed that Microsoft sees the promise in Skype of increasing the company's online presence. Skype has 663 million users around the world.

Skype was advised by Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. on the Microsoft deal.

According to the Los Angeles Times, Microsoft is trying to match Google in terms of online search. Microsoft's bid to buy Yahoo failed three years ago, although Yahoo is now worth significantly less than what Microsoft had offered it at the time.

Skype is also owned by Joltid and Canada Pension Plan Investment Board. Both groups have major shares of the company, reported the LA Times.

The deal, if it receives regulatory approval, would be the largest in Microsoft's 36 year history.


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