Microsoft to acquire Internet phone pioneer Skype

Microsoft announced Tuesday it is buying Internet phone service company Skype for $8.5 billion dollars cash in the largest acquisition ever by the US computer software giant.

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

"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."

Microsoft said Skype will become a new business division within Microsoft with Skype CEO Tony Bates assuming the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

Tens of millions of people use Skype to make low cost or free phone calls over the Internet using their computers or smartphones. Skype bypasses the standard telephone network by channeling voice and video calls over the Web.

Buying Skype could be a way for Microsoft to shed some of its business software image and gain momentum in a hot smartphone market at a time when Internet lifestyles are going mobile.

Microsoft's biggest acquisition until now had been its 2007 buy of digital marketing firm aQuantive for $6.3 billion.

Skype had also reportedly attracted interest from Cisco, Facebook and Google.

Microsoft and Skype said the deal has been approved by the boards of directors of both the Redmond, Washington-based Microsoft and the Luxembourg-based Skype, which is owned by investor group Silver Lake.

Bates said Microsoft and Skype "share the vision of bringing software innovation and products to our customers.

"Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate," Bates said.

Silver Lake managing director Egon Durban said he is "excited about Skype's long-term future with Microsoft, as it is poised to become one of the world's most dynamic and comprehensive communications platforms."

The companies said Skype will support Microsoft products like the Xbox game console and Kinect motion controller, Windows Phone and a wide array of Windows devices. Microsoft will also support Skype clients on non-Microsoft platforms.

Skype was founded in 2003 and acquired by online auction giant eBay in September 2005. It was sold to the investment group led by Silver Lake in November 2009 in a deal that valued the company at $2.75 billion.

Skype has 170 million users and logged more than 207 billion minutes of voice and video conversations in 2010.

Skype last year announced plans for an initial public offering of stock and appeared on its way to profitability, but investors are evidently eager for a payoff.

Other members of the investor group led by Silver Lake include eBay, CPP Investment Board, Joltid Limited, Europlay Capital Advisors and Andreessen Horowitz.

The acquisition is subject to regulatory approvals which the companies said they expect to obtain this year.

Microsoft shares were down 0.97 percent at $25.58 in pre-market electronic trading.

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