Mircrosoft to buy Skype for $8.5b

Microsoft Corp. is close to buying Web video conferencing service Skype Technologies in an $8.5 billion deal that would rank as the biggest ever for the software company, sources familiar with the situation said Monday. Microsoft and Skype declined comment.

Buying money-losing Skype would have no immediate impact on Microsoft's finances, but would make clear its intention to compete with rivals such as Apple Inc. and Google Inc.

Despite doubling sales and profit in the last eight years, Microsoft's stock has largely languished at the same level, as investors worry about its ability to counter new rivals such as Google or adapt to new ways of computing.

The deal is relatively small for Microsoft, which has $50 billion in cash and short-term investments on its balance sheet. The $8.5 billion purchase price would likely include the $686 million in long-term debt on Skype's balance sheet.

Skype is controlled by an investor group including Silver Lake, the Canada Pension Plan Investment Board and Andreessen Horowitz. The consortium bought a majority stake from eBay for about $2 billion in 2009.

EBay, which paid $3.1 billion for Skype in 2005, retained about a third of the company. Skype was formed in 2003 by entrepreneurs Niklas Zennstrom and Janus Friis in Luxembourg.

Facebook and Google Inc. were separately considering a tie-up with Skype, two sources with direct knowledge of the discussions previously told Reuters. Google had held early talks for a joint venture with Skype, a source said.