Microsoft Buys Skype for $8.5 Billion

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On Tuesday, former tech kingpin Microsoft made the stunning announcement that it would acquire popular Internet phone service Skype for a whopping $8.5 billion in cash. This will be Microsoft’s largest acquisition ever. Skype had been previously owned by eBay which bought the company for $2.6 billion in cash and stock in 2005, before selling 70% of the company to private investors in 2009 in a deal which valued Skype at $2.75 billion.

eBay had attempted to both monetize Skype’s business model and integrate it into its auction site, but failed on both counts. For 2010, Skype posted unimpressive revenue of $860 million and $264 million in operating profits with a $7 million loss, which leads many investors to wonder if Microsoft has overpaid. Skype also has $686 million in long term debt, which is now Microsoft’s debt. How can Microsoft integrate Skype into its existing services and monetize it where previous owners have failed?

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