Microsoft set to buy Skype in record £5 billion deal
Microsoft is poised to buy the highly popular internet phone service Skype in what would be the biggest deal in the software giant's 36-year history.
The $8.5 billion (£5.2 billion) deal would see private-equity investors who bought 70% of Skype from eBay just 18 months ago nearly treble their money.
Skype, which has never made a real profit, has already held talks with both Facebook and Google about possible tie-ups and was investigating the chances of a stock-market flotation. The price Microsoft is offering far exceeds any of these valuations.
Skype has some 633 million registered users worldwide. Buying that base up would give Microsoft and its chief executive Steve Ballmer a major audience to try to increase its share of the internet for such things as is search engine Bing and MSN.
At the same time Skype is seen as a potentially huge driving force for Microsoft to catch up in the telecoms market. Not only could Skype become an integral part of Microsoft's market-leading Office suite of software but it could help to get more of Microsoft's operating system onto smartphones and tablets where it has lagged well behind Apple and Google's Android recent growth.
Although most people know Skype as a free phone service it actually makes good revenues from selling more advanced business and video conferencing services to firms.
Skype was formed in 2003 by Swedish entrepreneur Niklas Zennström and Janus Friis from Denmark. It was bought by eBay for $2.6 billion in early 2006.
But after falling out with the founders and an inability to link together the online auction business with free phone calls, eBay took a $1.4 billion writedown on the business in 2007.
In 2009 eBay sold 70% of the business to a group of outside investors for $2 billion. These included the major technology fund Silver Lake, internet investor partnership Andreessen Horowitz - which also has stakes in Facebook, Twitter and Groupon - and the Canada Pension Plan Investment Board.
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Three years ago Microsoft was so desperate to improve its position on the internet that it made a $47 billion bid for Yahoo. It pulled out when Yahoo would not agree a deal and the search engine has since halved in value.
