Microsoft To Acquire Skype For Between $7-$8 Billion

Posted May 10, 2011

A few days ago I wrote about how Google and Facebook were in talks to form a partnership with Skype. Looks like those talks have ended because Microsoft is going to acquire Skype Technologies Inc. for between $7-$8 billion according to several sources. Including the long-term debt associated with Skype, the deal is worth about $8.5 billion. This would be Microsoft’s largest acquisition since Yahoo! turned down the $48 billion offer.

Niklas Zennstrom and Janus Friis founded Skype in 2003. eBay acquired the company in 2005 for $2.6 billion in cash and stock. eBay was going to integrate the service into their auction website, but that plan never happened. So eBay sold off 70% of Skype in 2009 to Silver Lake Partners, Index Ventures, Andreessen Horowitz, and the Canada Pension Plan Investment Board.

Last year, Skype’s revenues were $860 million and operating profits was $264 million. The company reported $686 million in long-term debt as of the end of this year. Skype uses VoIP technology for people to make phone calls to each other on-the-cheap.

Skype can also conduct video calls, which may be a reason why Microsoft is interested in the company. Skype could allow Microsoft to integrate video chatting into the Windows Phone 7 operating system to compete with the FaceTime feature available on the iPad 2, iPod Touch, and iPhone 4. Skype filed documents to go public last August, but changed the plan after they hired Tony Bates as CEO.