It's official: Microsoft to buy Skype for $8.5 billion

Redmond announces cash acquistion; deal approved by both boards

Update: Microsoft confirmed on Tuesday that it is buying Internet phone and videoconferencing company Skype for $8.5 billion in cash from an investor group.

Rumors that Redmond was close to acquiring Skype were first reported late Monday night (see original post below), though at the time neither Microsoft nor Skype would comment.

Just last Thursday Reuters reported that Facebook and Google were interested in pursuing deals with Skype, including possible acquisition.

In announcing the deal Tuesday, Microsoft said Skype technology would "support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms."

Redmond said Skype will become Microsoft Skype Division, with Skype CEO Tony Bates acting as president of the unit and reporting directly to Microsoft chief executive Steve Ballmer, who gushed in the press release announcing the deal:

"Skype is a phenomenal service that is loved by millions of people around the world."

And let's keep it that way, Microsoft.

Original post below

A third entrant has entered the Skype sweepstakes -- and this one reportedly might win.

Reuters writes that Microsoft (NASDAQ: MSFT) is "close to buying web video conferencing service Skype Technologies for $8.5 billion including debt, a source familiar with the situation said."

Supposedly the deal could be announced Tuesday morning, according to the anonymous Reuters source.

(Also see: Facebook, Google in Skype bidding war)

Neither Microsoft nor Skype would comment on the rumored deal, which initially was reported in the Wall Street Journal.

This latest rumor comes just five days after reports -- again emanating from anonymous sources -- that Google and Facebook were pursuing exclusive deals with Skype and perhaps outright acquisition.

Well, all three of them can't buy Skype, so who knows what's going to happen. The Microsoft purchase sounds the most definitive, though.

If Redmond does buy Skype for the price being kicked around -- nearly $8 billion -- it would be more than double what "sources" said Skype was being valued at last week when the Google and Facebook rumors were being floated.

But that was last week.

It also would be the biggest acquisition Micrsoft has ever made, topping the $6 billion Redmond shelled out in 2007 for online ad agency aQuantive.

Skype was purchased by eBay in 2005 for $3.1 billion, but the online auction giant sold two-thirds of its stake in the company to an investment group four years later.

Until all this acquisition talk started, Skype supposedly was planning a public offering expected to raise $1 billion. Now that seems like chump change, even for a company that lost $7 million in 2010 and has nearly $700 million in debt.

I'm not sure exactly how Skype would fit into Microsoft's business plans, but I wonder if Redmond is more interested in keeping Skype out of the hands of Google and Facebook than in owning the Internet phone and videoconferencing player outright.

On the other hand, you don't spend $8 billion to buy a company unless you have a solid plan for it.

Oh, wait, we're talking about Microsoft.

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