Microsoft confirms takeover of Skype

Microsoft has confirmed that it has agreed to buy internet phone service Skype.

The deal will see Microsoft pay $8.5bn (£5.2bn) for Skype, making it Microsoft's largest acquisition.

Luxembourg-based Skype has 663 million global users. In August last year it announced plans for a share flotation, but this was subsequently put on hold.

Internet auction house eBay bought Skype for $2.6bn in 2006, before selling 70% of it in 2009 for $2bn.

This majority stake was bought by a group of investors led by private equity firms Silver Lake and Andreessen Horowit.

Other major shareholders include tech-firm Joltid and the Canada Pension Plan Investment Board.

Shares in Microsoft ended the day in New York down 0.5% at $25.68. In contrast, eBay - which owns a stake in Skype - saw its share price rally 2.5%.

'Defensive move'

Microsoft chief executive Steve Ballmer said: "Skype is a phenomenal service that is loved by millions of people around the world.

"Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

Skype will now become a new division within Microsoft, and Skype chief executive Tony Bates will continue to lead the business, reporting directly to Mr Ballmer.

"It's a strategic asset and a defensive move [for Microsoft]," said Colin Gillis, an analyst at BGC Financial.

"If they can put it on Windows 8, it gives them an advantage. It helps them in the tablet market."

Other analysts say Microsoft's aim in buying Skype is to improve its video conferencing services.

Price concerns

Although the price tag of $8.5bn will not stretch the US giant, some experts have questioned whether it is paying too much for a company that has struggled to turn a profit.

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.

"The big unanswered question is how do Skype assets work for Microsoft... how do you justify the price?" he said.

Skype was founded in 2003.

Calls to other Skype users are free, while the company charges for those made to both traditional landline phones and mobiles.