The purchase price includes the assumption of Skype’s debt.
The agreement has been approved by the boards of directors of both Microsoft and Skype.
Skype will become a new business division within Microsoft, and its current chief executive Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Microsoft CEO Steve Ballmer.
The $8.5 billion question: did Microsoft overpay for Skype?
Perhaps, perhaps not. Only time will tell. As always with these things, the many tech industry pundits and analysts will look at this deal from all possible angles and then some, and still only a handful will end up being somewhat accurate when we look back in a couple of years.
From a non-financial point of view, the acquisition makes a ton of sense today, though.
Skype digitally connects dozens of millions of people on a daily basis, enabling them to communicate with each other through voice calls, chat messages and video conferencing.
There’s no doubt it’s a big brand on the Web (with both consumer and enterprise appeal, worldwide at that), and is poised to keep mattering in the next decade and beyond.
In August 2010, Skype filed to go public, expecting to raise $1 billion, but not long after appointing a new CEO, former Cisco SVP Tony Bates, the company put its IPO plans in the freezer while it looked for ways to generate more revenue from the popular service.
Skype’s 2010 revenue was $860 million, adjusted EBITDA was $264 million, and – as many are tripping over each others to point out – the company actually lost $7 million last year.
But looking ahead, chances for the business to keep growing, perhaps even acceleratingly so, are fairly big. In that sense, it’s a valuable asset to own (and to keep out of others’ hands).
The acquisition is subject to regulatory approvals and other customary closing conditions.
Microsoft and Skype said they “hope to obtain all required regulatory clearances during the course of this calendar year”.
Microsoft also pledged that it would “continue to invest in and support Skype clients on non-Microsoft platforms”.
Since its former owner eBay sold the company to a consortium of investors formed by Silver Lake Partners, Joltid (the company founded by Skype’s original founders, Niklas Zennstrom and Janus Friis), the Canada Pension Plan Investment Board and Andreessen Horowitz in November 2009, the company has been pursuing an aggressive strategy to be available everywhere, anytime, both in enterprises, the living room, even classrooms and, very importantly, on smartphones.