I like to think that if a company is prepared to shell out $8.5bn to acquire another business, the reasoning for such a bold move should be concise and easily explained in a single sentence. Especially if the price being paid, is widely agreed to be above expectations. It’s not as this is a particularly radical expectation. After all, if you or I decide to spend a significant amount of cash on something, we usually a primary logical reason for our actions, even if there may well be additional benefits to the transaction.
My initial reaction to the news of Microsoft’s acquisition of Skype was “how much?” It’s fair to assume that I probably was not alone. The fact is that Skype has never turned a profit. It was only worth $2.5bn when eBay bought it in 2005 and around $3.92bn when eBay sold 70% of its stake to private equity investor Silver Lake in 2009 for $2.75bn. While two years may well seem like an eon in the technology business, a near 117% increase in value is pretty spectacular.
The general feeling seems to be that buying Skype will give Microsoft a boost in its battle against Google and Apple. Well, it’s certainly a bold move on that front, even if most of the ‘boldness’ for those of us on the outside comes from the amount of cash Microsoft is prepared to pay rather than, necessarily, the technology it has acquired. And if it is true, it says something about just how much of a threat Microsoft perceives Google and Apple to be that it is prepared to pay so highly for the privilege.
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