Microsoft confirms aquisition of Skype for £5.2bn, despite Skype’s losses last year

This morning, all over the internet was this 'hush hush' acquisition of Skype by Microsoft. Skype and Microsoft refused to comment on the deal and so called sources wanted to remain anonymous whilst they leaked information of this deal to the press. 

I don't know about you, but all this secrecy got me excited and I was constantly checking the news on my phone whilst I was in class today to see if any more information was out about this acquisition. Especially because many analysts reactions to the £5.2bn amount was quite shocking!

Anyway, enough about me. It has been confirmed that Microsoft has bought Skype for £5.2bn.

This is Microsoft’s biggest acquisition yet the deal has shocked analysts who think it would be a substantial overpayment for the company.

 The acquisition of Skype would expand Microsoft’s presence on the Internet, which Chief Executive Steve Ballmer views as an essential field. Additionally, analysts say Microsoft wants to buy Skype to improve its video conferencing services. The service could be integrated into existing Microsoft products such as its Xbox 360 games console and Kinect gaming systems, or even into its flagship Office product to let users collaborate more effectively.

News of the deal and Microsoft's interest in Skype was first reported by the Wall Street Journal online and the technology site GigaOM.

Analysts have broadly favoured the idea of the deal, but questioned whether it could ever be worth the price. Skype was bought by eBay for $2.6bn in 2005: at the time people suggested its services could be incorporated into auctions so that bidders or sellers could call each other ahead of their close. But the synergistic ideas never materialised, and eBay wrote down Skype's value by $1.4bn, before selling off a 70% stake at the end of 2007. Ironically, the suggested price would make its 30% stake worth $2.4bn – effectively making money on the deal long-term.

 

Buying money-losing Skype would have no immediate impact on Microsoft’s finances, but would make clear its intention to compete with rivals such as Apple Inc. and Google Inc.  

Despite doubling sales and profit in the last eight years, Microsoft’s stock has largely languished at the same level, as investors worry about its ability to counter new rivals such as Google or adapt to new ways of computing. 

Facebook and Google were separately considering a tie-up with Skype, two sources with direct knowledge of the discussions previously told Reuters. Google had held early talks for a joint venture with Skype, the second source said. 

Skype has debt of $686m, which Microsoft would assume in the purchase. Microsoft's online efforts have been staggering loss-makers over the past few years. Its online service division, which includes its Bing search engine, has lost $8bn over the past six years, and has not been profitable since the end of 2005.

Michael Clendenin, managing director of consulting firm RedTech Advisors, said: "If you consider [Skype] was just valued at about $2.5bn 18 months ago when a chunk was sold off, then $8.5bn seems generous.[It] means Microsoft has a high wall to climb to prove to investors that Skype is a necessary linchpin for the company's online and mobile strategy."

This view was echoed by Ben Woods, head of research group CCS Insight.