In a press release issued this morning, Microsoft confirmed rumours it will buy Skype for $8.5 billion in cash. The acquisition is the largest in Microsoft’s history.
“Skype is a phenomenal service that is loved by millions of people around the world,” said Microsoft CEO Steve Ballmer in a news release. “Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.”
The deal has been approved by the boards of directors of both Microsoft and Skype, and Microsoft says the acquisition will “increase the accessibility of real-time video and voice communications.”
The company says the deal will also generate new business and revenue opportunities.According to filings, Skype posted $859.8 million in revenue in 2010, but lost $7 million. Under the acquition, Microsoft will also assume the $686 million in debt which Skype posted as of Dec. 31, the Wall Street Journal reports.
From an organizational standpoint, Skype will become a new business division within Microsoft. Current Skype CEO, Tony Bates, will become President of the Microsoft Skype Division and he will report directly to Ballmer.
“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” said Tony Bates in a news release. “Together, we will be able to accelerate Skype’s plans to extend our global community and introduce new ways for everyone to communicate and collaborate,” Bates said.
Microsoft eyes this deal as a way to enhance its portfolio of real-time communication products and services, as Skype boasts 660 million users worldwide (170 million of whom are “connected users” according to the press release) and more than 207 billion minutes of voice and video conversations last year.
Under the terms of the deal, Microsoft says it will continue to support and invest in Skype clients on non-Microsoft platforms. Skype will also support Microsoft devices such as Xbox, Kinect, Windows Phone and a wide array of Windows devices. It will also connect Skype users with Lync, Outlook, Xbox Live and other communities.
“We are thrilled with Skype’s transformation during the period of our ownership and grateful for the extraordinary commitment of its management team and employees,” said Egon Durban, managing director of Silver Lake, the investor group that sold Skype to Microsoft. “We are excited about Skype’s long-term future with Microsoft, as it is poised to become one of the world’s most dynamic and comprehensive communications platforms.”
Not everyone is excited about Microsoft’s acquisition, however. Analysts were reportedly shocked by the the deal, and concerned Microsoft overpaid for the company.
Skype has a long history in voice-over-IP services and is a widely known name in the industry. The company was founded in 2003 and was acquired by eBay in 2005 for $2.6 billion. It was sold again in 2009 to several investors including Silver Lake, eBay International AG, CPP Investment Board, Joltid Limited in partnership with Europlay Capital Advisors, and Andreessen Horowitz.
Microsoft says in the 18 months since Skype was bought from eBay, calling minutes have increased by 150 percent and the company has developed new revenue streams and strategic partnerships.
The acquisition will now be subject to regulatory approvals, which both companies hope will happen by the end of this calendar year.