WTF? Microsoft Buys Skype for $8.5 Billion. That would be 5B more than ebay's flop of a buy.

LevFinGS's picture
Rank: Orangutan | banana points 317

It was sold by ebay in 2009 for 1.2B. This is so confusing. Tech bubble?

Comments (27)

May 10, 2011

I think this is a play to take market share from Google...or at least keep them from gaining it. FB and Google were looking to buy Skype, FB likely would integrate it into FB (duh) and Google would have used it to generate more cash through in window adverts.

I would have preferred either FB or Google to win over Microsoft, but it is what it is.

Regards

May 10, 2011

Microsoft is to the tech/business world what Third Eye Blind is to music: a bunch of washed out 90's has beens. They had three big hit songs in the 90's (Windows, Office, Xbox), so everyone knows who they are. No one wants to hear their new music (in the case of Third Eye Blind) or buy their new products (Do you even care that they stopped producing Zune).

As for this deal, its the equivalent of Third Eye Blind covering a Kid Cudi song; sure, Cudi is hip, but it just doesn't work with Third Eye Blind covering it.

Honestly, Microsoft is toast. CPH, your wish will be fulfilled when FB buys them in a few years (Did I just go there?!). Microsoft's problem is political in nature: Windows is such a powerful division in there company that nothing can be done without getting approval from Windows management. Office could be sold on every smart phone, but the Windows people only want it sold on Windows 7 platform. Microsoft has missed out on an entire technology cycle (mobile), and is playing catch up by trying to buy Skype, which isn't even a profitable company.

I'd be bullish on Microsoft if they split the company into different groups. Windows, Office, and XBox are all successful products, and as separate companies they would be worth a lot more than they are mashed together.

May 10, 2011
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is... rel=nofollow>LIBOR</a></span>:

Microsoft is to the tech/business world what Third Eye Blind is to music: a bunch of washed out 90's has beens. They had three big hit songs in the 90's (Windows, Office, Xbox), so everyone knows who they are. No one wants to hear their new music (in the case of Third Eye Blind) or buy their new products (Do you even care that they stopped producing Zune).

As for this deal, its the equivalent of Third Eye Blind covering a Kid Cudi song; sure, Cudi is hip, but it just doesn't work with Third Eye Blind covering it.

Honestly, Microsoft is toast. CPH, your wish will be fulfilled when FB buys them in a few years (Did I just go there?!). Microsoft's problem is political in nature: Windows is such a powerful division in there company that nothing can be done without getting approval from Windows management. Office could be sold on every smart phone, but the Windows people only want it sold on Windows 7 platform. Microsoft has missed out on an entire technology cycle (mobile), and is playing catch up by trying to buy Skype, which isn't even a profitable company.

I'd be bullish on Microsoft if they split the company into different groups. Windows, Office, and XBox are all successful products, and as separate companies they would be worth a lot more than they are mashed together.

Your statement that you cant get office on anything but a windows phone is just not true. There is an office app for android.

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May 10, 2011

It always makes me laugh when haters try to explain why MSFT is the worst company ever while they still use their products every fucking day.

    • 2
May 10, 2011
Glabibou:

It always makes me laugh when haters try to explain why MSFT is the worst company ever while they still use their products every fucking day.

What's your point? Sure, I use their products, but that doesn't mean I don't think that their stock will perform well over the next decade (because it has done so well over the last decade). Everyone used Kodak products 15 years ago, and abandoned them when they refused to go digital. Microsoft is two steps behind the curve just like Kodak; they are struggling to keep things the way they are when the world is clearly going in a different direction.

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May 10, 2011

Although MSFT significantly overpaid for Skype I think the deal has some merits. First, there are some interesting synergies with some of MSFT's other divisions/products...Kinect, Xbox Live, Lync (for enterprise), Windows Live Messenger, Windows Phone 7, Windows, Bing, etc. Second, it seems like a decent defensive play against Google and Apple in mobile particularly around video chat. Lastly, all of these major companies are trying to compete with FB to build out robust social signals...Skype has a 500M+ user base with significant amount of time spend and via Skype's APIs MSFT may be able to get nice social data as across the web (similar to FB Connect) as users use Skype's click-to-call feature across the web (i.e. if you have skype running in the background of your PC then it enables CTC on any phone number that shows up on any website - similar to FB's Like feature functionality).

All in all, I think its a decent deal EXCEPT for the ridiculous price paid. If MSFT had paid less than $4B then I would be saying that the deal is a slam dunk.

May 10, 2011

one thing is for sure. Silver Lake killed it. now we know why GS is numero 1 - they made MSFT pay 8.5bn for the business. it's a crazy number. Financially doesnt make any sense but strategic wise in terms of MSFT vs Google vs. Facebook maybe.

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May 10, 2011

watch for Facebook to take out Vonage... you heard it here first folks.

May 10, 2011

watch for Facebook to take out Vonage... you heard it here first folks

Why would FB do that when they can more easily integrate with Skype given their relationship with MSFT?

May 10, 2011

FB has a pretty good relationship with Vonage. I was at VG HQ (non banking related) about a month ago and they got a facebook room. Just a hunch. Haven't heard anyone say it on the street. Let's wait and see if I am right.

May 10, 2011

I think the bigger story here is:
ZOMG a sell-side mega-deal that wasn't advised by Qatalyst!?!?!

May 10, 2011

Maybe MSFT should have hired a financial advisor to value Skype and they would have come up with a more reasonable price. Goldman Sachs and J.P. Morgan sure worked wonders for Skype and the venture capitalists, who just 2 years ago bought the company at less than a third of the price MSFT is offering.

May 10, 2011

how do you think they came up with the 8bil number?

May 10, 2011
blastoise:

how do you think they came up with the 8bil number?

I'm sure they have guys, who can pull a DCF + they didn't need any financing, because they are sittin on mountains of cash.They probably applied a cost of capital of 1% though, which if you ask a MSFT shareholder actually seems about right ;) (debt is virtually non-existent)

May 10, 2011
Il Cavaliere:
blastoise:

how do you think they came up with the 8bil number?

I'm sure they have guys, who can pull a DCF + they didn't need any financing, because they are sittin on mountains of cash.They probably applied a cost of capital of 1% though, which if you ask a MSFT shareholder actually seems about right ;) (debt is virtually non-existent)

cost of capital of 1%? that's impossible-risk free rate alone is 3-4%. I think they justified it based on optimistic synergies + growth projections, rather than by adopting a lower cost of capital.

May 10, 2011

I'm not sure if MSFT used a financial advisor on the deal or not...generally these large tech companies have large corpdev teams that do most of the work, that said, on some of these larger deals ($5B+) they will also engage with an independent financial advisor to validate some of the internal corpdev work.

I think the price is more reflective of the fact that MSFT has a hard time winning deals against GOOG and had to come in significantly higher than GOOG's rumored $4B bid to get Skype onboard...and they justified it internally by modelling a ridiculous amount of synergies that in all reality they won't be able to execute on.

May 10, 2011
harvardgrad08:

I'm not sure if MSFT used a financial advisor on the deal or not...generally these large tech companies have large corpdev teams that do most of the work

They didn't use an advisor, they used an in-house team.

Advisors to Skype were GS and JPM.

http://www.thestreet.com/story/11112722/1/jpmorgan...

May 10, 2011
harvardgrad08:

...I think the price is more reflective of the fact that MSFT has a hard time winning deals against GOOG and had to come in significantly higher than GOOG's rumored $4B bid to get Skype onboard...and they justified it internally by modelling a ridiculous amount of synergies that in all reality they won't be able to execute on.

Exactly. They just needed to win the deal, so they went all in.

Regards

May 10, 2011

JPM TMT killing it? AT&T-Mobile and now Skype...

Pretty interesting deal. I doubt MSFT will be able to capitalize on all the synergies they're thinking about, but I'd like to see where they take this. Sounds like they want to go hard with multimedia, and this is a crucial step to realizing that.

May 10, 2011
HarvardOrBust:

JPM TMT killing it? AT&T-Mobile and now Skype...

Pretty interesting deal. I doubt MSFT will be able to capitalize on all the synergies they're thinking about, but I'd like to see where they take this. Sounds like they want to go hard with multimedia, and this is a crucial step to realizing that.

Hey I have a question concerning the division of labor on such a deal.
Both JPM and GS are advising Skype. Does everybody value the company on their own and the board then takes a look at both and makes a decision, or do the advisors work closely together and everybody specializes.
I mean in this case it was only 2 banks, but you sometimes read that 4 banks are advising one client.
Are they all paid the same fees. Or is one superior to another?

May 12, 2011
Il Cavaliere:
HarvardOrBust:

JPM TMT killing it? AT&T-Mobile and now Skype...

Pretty interesting deal. I doubt MSFT will be able to capitalize on all the synergies they're thinking about, but I'd like to see where they take this. Sounds like they want to go hard with multimedia, and this is a crucial step to realizing that.

Hey I have a question concerning the division of labor on such a deal.
Both JPM and GS are advising Skype. Does everybody value the company on their own and the board then takes a look at both and makes a decision, or do the advisors work closely together and everybody specializes.
I mean in this case it was only 2 banks, but you sometimes read that 4 banks are advising one client.
Are they all paid the same fees. Or is one superior to another?

It depends on what role the particular bank is playing. Read the fall of RJR Nabisco to get an idea of how fee negotiations happen when you have more than one bank advising a client

Still I Rise

May 10, 2011

http://dealbook.nytimes.com/2011/05/10/ranking-the...
looking back at these acquisitions, how many were actually good?

May 10, 2011

Bump actually, good question that I've wondered before too

May 10, 2011

The vast majority of MSFT's $40 billion+ in cash is held overseas to avoid taxes upon repatriation. They probably financed this with debt because it's so cheap for them. Also, their primary banker is Morgan Stanley's west coast tech office (SF or Menlo Park I don't remember where they're actually located).

People tend to think life is a race with other people. They don't realize that every moment they spend sprinting towards the finish line is a moment they lose permanently, and a moment closer to their death.

May 12, 2011

GS advised on this deal?

Still I Rise

May 12, 2011
May 12, 2011

If I had asked people what they wanted, they would have said faster horses - Henry Ford