Microsoft to buy Skype for $8,5bn

MICROSOFT plans to buy internet phone service Skype for $8,5bn – a rich price – as it seeks to regain ground on growing rivals such as Google.

Microsoft’s bid to gain the world’s most popular internet-calling service and its 663-million customers highlights a need to gain new customers for its Windows and Office software. Skype had considered other options, including tie-ups with Facebook and Google. Such a deal was seen as valuing Skype at up to $4bn.

The $8,5bn price includes net debt, a person familiar with the matter said Skype reported about $775m in debt, along with a revolving credit line of 430m, in a filing in April. Microsoft had cash and short-term investments of about $50bn at the end of March this year.
“This could give Microsoft a much-needed kick-start in telecommunications,” CCS Insight analyst Paolo Pescatore said in London yesterday. In voice services, “Skype has certainly set the benchmark.

A purchase by Microsoft would divert Skype from a planned share sale.
Microsoft, the world’s largest software maker, slipped 1,8% to the equivalent of $25,58 in German trading yesterday. The stock fell 4c, or 0,2%, to $25,83 on Monday in Nasdaq Stock Market composite trading, extending the stock’s decline to 7,5% this year link to Microsoft’s Xbox live gaming.

In the 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 personal computer usage comes under threat. Skype is set to become a new business division within Microsoft, with Skype CE Tony Bates in charge and reporting directly to Microsoft CEO Steve Ballmer. 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 short life.

Skype was founded in 2003 by Niklas Zennstrom and Janus Friis and its investors include eBay, private equity firm Silver Lake and venture capital firm Andreessen Horowitz. Mr Zennstrom and Mr Friis sold the company for $2,6bn in 2005 to eBay, which in turn sold off most if its stake four years later.

Microsoft lags behind Google in web search and related advertising.
Skype could be combined with Microsoft software such as Outlook to appeal to corporate users, while the voice and video communications could vices on Yahoo’s pages.

Tightly integrated Skype services could be an added selling point for Windows Phone 7, the mobile operating system Microsoft is promoting as a competitor to Google’s Android and Apple’s iOS Mr Pescatore said. “Google is probably the one that’s getting the closest to Skype” with its voice product, though the Google Talk service is “not on par in terms of quality” and the Google Voice product is a late entrant and will find it difficult to catch up, said Leif-Olof Wallin, an analyst at Gartner in Stockholm.