Microsoft buys Skype for $US8.5bn

Microsoft Corp to buy internet phone company Skype Technologies SA for $US8.5 billion will be announced overnight.

Skyp Intro page

The deal – which is being spearheaded in a closely held negotiations by Microsoft CEO Steve Ballmer, with an assist from top dealmaker Charles Songhurst – is a bold move for the software giant, which has struggled in its online efforts.

Skype, which had been headed bumpily for an IPO until now, will apparently be integrated into Microsoft’s Windows Live and other online communications efforts in both the consumer and enterprise arenas.

The deal is a big win for its recent investors, including Silver Lake Partners and Andreessen Horowitz.

Skype connects more than 663 million users around the world via internet-based telephony and video, making it a key technology platform for a new generation of web-savvy consumers. During 2010, those users made 207 billion minutes of voice and voice video calls over Skype.

The company has invested heavily in marketing and improving the technology of its Bing search engine. While it has made some market share gains over the past year, Google Inc. still dominates the search market with more than 65 per cent of US searches going through its site.

At a value of $US8.5 billion, the Skype deal would rank at or near the top of the biggest acquisitions in the 36-year history of Microsoft, a company that traditionally has shied away from large deals. In 2007, Microsoft paid approximately $US6 billion to acquire online advertising firm aQuantive Inc.

Many current and former Microsoft executives believe Microsoft significantly overpaid for that deal. But they are also relieved that Microsoft gave up on an unsolicited $US48 billion offer for Yahoo Inc. nearly three years ago. Yahoo is valued at half that sum today.

Microsoft Chief Executive Steve Ballmer, though, sees the internet as an essential battleground for Microsoft, a company that still makes the vast bulk of its profits from Windows and Office software systems.