Big news today in the tech sector.
Microsoft announced an $8.5 billion acquisition of the Internet
telephone service Skype Technologies SA from eBay and a group of private
equity investors including Silicon Valley heavyweights Silver Lake
Partners. The deal is Microsoft's largest cash purchase in its 36-year
long history.
"The combination will extend Skype's world-class brand and the reach
of its networked platform, while enhancing Microsoft's existing
portfolio of real-time communications products and services," according
to Microsoft's press release
on the deal. "With 170 million connected users and over 207 billion
minutes of voice and video conversations in 2010, Skype has been a
pioneer in creating rich, meaningful connections among friends, families
and business colleagues globally."
But, the big kicker as The Daily Ticker's Aaron Task and Daniel Gross
discuss in the accompanying video is the fact that Skype makes no
money. In 2010, Skype had revenues of $860 million and posted a net loss
of roughly $7 million.
Why would Microsoft dole out nearly $10 billion -- or ten times revenues -- for a company that makes zero profit?
Because the company has a terrible predicament not uncommon to very
mature tech companies, according to both Dan and Aaron. Microsoft simply
has so much cash it doesn't know what to do with and, for whatever
reasons, paying bigger dividends and buying back stock are just not
options.
Microsoft may also hope the deal will increase its competitiveness
against both Apple and Google in the mobile platform arena by allowing
it to upgrade its suite of products.
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http://finance.yahoo.com/blogs/daily-ticker/microsoft-buys-skype-8-5-billion-cash-deal-181237725.html
Microsoft announced an $8.5 billion acquisition of the Internet
telephone service Skype Technologies SA from eBay and a group of private
equity investors including Silicon Valley heavyweights Silver Lake
Partners. The deal is Microsoft's largest cash purchase in its 36-year
long history.
"The combination will extend Skype's world-class brand and the reach
of its networked platform, while enhancing Microsoft's existing
portfolio of real-time communications products and services," according
to Microsoft's press release
on the deal. "With 170 million connected users and over 207 billion
minutes of voice and video conversations in 2010, Skype has been a
pioneer in creating rich, meaningful connections among friends, families
and business colleagues globally."
But, the big kicker as The Daily Ticker's Aaron Task and Daniel Gross
discuss in the accompanying video is the fact that Skype makes no
money. In 2010, Skype had revenues of $860 million and posted a net loss
of roughly $7 million.
Why would Microsoft dole out nearly $10 billion -- or ten times revenues -- for a company that makes zero profit?
Because the company has a terrible predicament not uncommon to very
mature tech companies, according to both Dan and Aaron. Microsoft simply
has so much cash it doesn't know what to do with and, for whatever
reasons, paying bigger dividends and buying back stock are just not
options.
Microsoft may also hope the deal will increase its competitiveness
against both Apple and Google in the mobile platform arena by allowing
it to upgrade its suite of products.
-------------------------------------------------------------
http://finance.yahoo.com/blogs/daily-ticker/microsoft-buys-skype-8-5-billion-cash-deal-181237725.html