CONFIRMED: Microsoft Nabs Skype For $8.5B & Vows To 'Do More Things'

Written by Oonagh Reidy     11/05/2011 | 02:04 | Category: VOIP

It could be the most expensive call Microsoft ever makes but the deal with VoIP expert has gone through.




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Microsoft CEO, Steve Ballmer, and Skype's Tony Bates, shake on it.
The deal, just announced, which has shocked analysts for the steep price paid for a company that made a loss last year and that also comes with a massive long term debt - $US686m at the end of 2010. 

And this latest move has shocked not just analysts but many execs within Microsoft are also said not to be happy, according to The Wall Street Journal.

However, CEO Steve Ballmer insists the purchase will allow his software company "be more ambitious, do more things."

The last time Microsoft forked out such a massive sum was for an online ad company aQuantive, which it paid $6bn for in 2007.

The Luxembourg based VoIP service provider is one third owned by eBay and the remainder by private investors including  Index Ventures and the Canada Pension Plan Investment Board. It began its Voice over Internet Protocol (VoIP) service in 2002, offering free and paid landline calls, and is the biggest and most widely used service of its kind globally.

Microsoft also sees an opportunity to expand Skype's reach by blending it with other technologies across its product portfolio, including the Xbox, Windows Phone software and its current VoIP division, Lync, which combines email, instant messaging and voice, Ballmer stated in an interview.

Its Windows 7 platform (and upcoming W8) could also be in for a Skype treat, although importantly Ballmer said it will continue to support non-W7 platforms including iPhone and Android devices.

He is also looking to strengthen its communications offering, which he says has been the "backbone of Microsoft in recent years.

And he is hoping to turn Skype's figures around and make it profitable:

"We're buying a company with Ebitda over $US250 million. We see an opportunity to accelerate its revenue and profit base."

However, its inability to turn a profit, so far, is a primary reason for analyst's reservations about the $8.5bn deal. Last year Skype recorded an operating  loss of $US7m on the back of  revenue of $US860m and $US264m in operating profits.

"It doesn't make sense at all as a financial investment. There's no way Microsoft is going to generate enough revenue and profit from Skype to compensate," says Andrew Bartels, from analysts Forrester told Reuters.

However, others view the move as a good thing for Microsoft:

"This is another major step for Microsoft's aggressive pursuit of Google and Apple, which also may have a secondary effect: further pain for the telcos and especially mobile IMS and its flag-waving applications VoLTE and RCS [Rich Communication Suite]," said Dean Bubley of Disruptive Analysis.

eBay, who purchased the company for $US2.6bn (cash and stock) in 2005, subsequently sought to lighten its load selling two thirds to a number of private investors after its plan to develop online comms platform failed.

However, it has has around 145 million monthly users on average and another 400 m registered, putting Microsoft to the forefront of the internet calls. Skype's global calls used outnumbered all other telco's by 2:1.

The acquisition could also put the Washington based company, who lost some of its momentum in recent years and recently beaten by arch rivals Apple in the protitability stakes for the first time ever, back on track. Its search engine Bing has been a particular drag, recording a loss of $726m on revenues of just $648m.

Skype will be integrated into the software powerhouse as another division with CEO Tony Bates holding the role of President.

Reports had recently emerged that both Facebook and Google were at war to win enter into a joint venture for mobile calling solutions.

Read REPORTS: Microsoft To Buy Skype $8.5bn? here