REUTERS

After the takeover, Skype chief executive Tony Bates will report directly to Microsoft chief executive Steve Ballmer, who is planning a revival of |Microsofts online services division. Photo: Reuters

Douglas Macmillan and Zachary Mider San Francisco and New York

Microsoft had agreed to buy Skype Technologies for $8.5 billion (R60bn) in cash to acquire the most popular internet calling service and its 663 million customers, the companies said yesterday.

Microsoft will acquire Luxembourg-based Skype from an investor group led by Silver Lake. The agreement has been approved by the boards of both companies.

The takeover may help Microsoft attract Web users and narrow Google’s lead in internet advertising. The acquisition is Microsoft’s largest, surpassing the purchase of AQuantive for about $6bn in 2007.

“This could give Microsoft a much-needed kick-start” in telecommunications, said analyst Paolo Pescatore at CCS Insight in London.

In voice services, “Skype has certainly set the benchmark and gained a lot of traction”.

The purchase by Microsoft will divert Skype from a plan, announced in August last year, to sell $100 million of shares in an initial public offering. The firm has struggled to convert users of its free computer-to-computer phone services into paying customers, according to a March regulatory filing.

The price included net debt, a person familiar with the matter said. Skype reported about $775m in debt, along with a revolving credit line of $30m, in a filing last month.

Chief executive Steve Ballmer aims at reviving Microsoft’s online services unit, which had an operating loss of more than $700m in the three months to March. The company lags behind Google in internet search and related advertising.

“Microsoft has a lot of areas in its overall internet business that it could be working on, and whether the acquisition of Skype is the key silver bullet that fixes all of that remains to be seen,” said Kunal Bajaj, the head of telecoms consulting firm Analysys Mason India.

“People go to Skype to make phone calls, and there isn’t much else in social networking, instant-messaging and status updates and things like that.”

Microsoft abandoned an unsolicited effort to buy Yahoo! for as much as $47.5bn in 2008 and instead struck an agreement to provide search services on Yahoo’s pages.

Microsoft offers voice chat services to consumers through its Windows Live Messenger software, and to corporate customers through its Lync collaboration platform.

Tightly integrated Skype services could be an added selling point for Windows Phone 7, the mobile operating system Microsoft is promoting as a competitor to Google’s Android and Apple’s iOS, Pescatore said.

Skype was founded in 2003 by Niklas Zennstrom and Janus Friis and its investors include eBay, private equity firm Silver Lake and venture capital firm Andreessen Horowitz.

Zennstrom and Friis sold the company for $2.6bn in 2005 to eBay, which sold off most of its stake four years later.

Skype’s competitors include the fledgling Google Voice service and video chat client Fring.

Analyst Leif-Olof Wallin at Gartner Stockholm said: “The biggest monetisation potential is through ads.” – Bloomberg