Microsoft to buy Skype

Microsoft Corp plans to buy Internet phone service Skype for $8.5 billion in its biggest-ever acquisition, placing a rich bet on mobile and the Internet to try to best rivals such as Google Inc.

 

In a deal that took a month from offer to signing, the software company outbid Google and Facebook, which sources said offered to partner or buy Skype for $3 billion to $4 billion.
Microsoft's interest in the money-losing, but popular service highlights a need to gain new customers for its Windows and Office software. Skype has 145 million users on average each month and has gained favor among small business users.
But investors expressed skepticism over the deal, sending Microsoft shares down 0.62 percent to $25.67. If those losses hold, the software giant's market value -- already exceeded by Apple Inc last year -- will slip behind General Electric Co's and begin to approach IBM's.
Led by private equity firm Silver Lake, eBay Inc and other investors including the Canada Pension Plan Investment Board and Andreessen Horowitz, would make $5 billion, or three times their investment, a source familiar with the deal said.
Microsoft is putting more energy and resources into mobile and the Internet as the personal computer business underpinning its Windows and Office franchise appears to be under threat.
The Luxembourg-based company, which allows people to make calls at no charge, but has also developed premium services, would give Microsoft a foothold in the video-conferencing market as businesses shift to cheaper ways of communicating.
Skype delayed plans for an IPO that was expected to value the company at more than $3 billion. It looked tie-ups with Facebook and Google. Such a deal was expected to value Skype at $3 billion to $4 billion.
"It doesn't make sense at all as a financial investment," said Forrester Research analyst Andrew Bartels. "There's no way Microsoft is going to generate enough revenue and profit from Skype to compensate."
A MOBILE PRESENCE
Skype could be combined with Microsoft software such as Outlook to appeal to corporate users, while the voice and video communications could link to Microsoft's Xbox live gaming.
Skype also would offer Microsoft another route to develop its mobile presence, an area it has already put more energy and resources into as PC usage comes under threat.
Skype would become a new business division within Microsoft with Skype CEO Tony Bates in charge and reporting to Ballmer.
"Tony didn't look for it. The ownership group, led by Silver Lake, didn't look for it. We just decided (it was) something that we thought made sense for us," a jubilant Ballmer told reporters.
The sum would not stretch Microsoft. It would bankroll the deal with cash sitting overseas, which would be taxed if Microsoft brought it home. But others said the price was high.
"In this atmosphere of Internet Bubble 2.0, picking up an unprofitable online company for roughly 10 times sales probably seems downright cheap," said Shanghai-based Michael Clendenin, managing director of consulting firm RedTech Advisors.
"But if you consider (it) was just valued at about $2.5 billion 18 months ago when a chunk was sold off, then $8.5 billion seems generous and means Microsoft has a high wall to climb to prove to investors that Skype is a necessary linchpin for the company's online and mobile strategy," he said.
Skype, which was formed in 2003. EBay Inc bought it in 2005 for $3.1 billion. Last year, it lost $7 million, according to data in its initial public offering filing.
In 2009, eBay sold a majority stake in Skype for $1.9 billion in cash and a $125 million note. EBay retained about a third.
Ballmer said his company did not use Wall Street advisers on the deal, approaching the owners directly. Goldman Sachs and JPMorgan advised Skype.
The deal, the biggest in technology so far in 2011, capped the strongest start to deal-making since 2000, according to Thomson Reuters data. (For a graphic on technology deals, click here: r.reuters.com/vev49r)
"I wish they had not done it," said Whitney Tilson, founder and a managing partner of T2 Partners LLC, which owns Microsoft shares. "Everybody I know uses it and I am glad Microsoft owns it. They just probably paid too much for it."
"We aren't big enough to have a big say. But I am sure that everybody else -- the bigger shareholders -- are going to be asking Microsoft, 'why did you this?'"
(Additional reporting by Poornima Gupta in San Francisco; Jennifer Ablan, Megan Davies and Sinead Carew in New York; Sakthi Prasad in Bangalore; Clare Jim in Taipei; Melanie Lee in Singapore; Tarmo Virki in Helsinki; and Nicola Leske in Frankfurt. Writing by Edwin Chan; Editing by Robert MacMillan)

Internet boom 2.0 is here, starts to look bubbly

The tantalizing prospect of finding the next Facebook, Groupon or Twitter is driving the biggest rush of venture capital into the Internet start-up arena since dot-com mania first boomed and then fizzled more than a decade ago

More than $5 billion of venture capital investment flowed into young web companies globally in the first four months of the year, data from Thomson Reuters Deals Intelligence shows.
Though small compared with the boom years, the sum puts 2011 on track to be the busiest in dollar terms since 2000, when more than $55 billion was deployed to back nascent technology firms.
The latest frenzy bears some of the hallmarks of the previous web investment craze -- exuberance over "concept" start-ups that have not launched their sites and intense competition among potential backers to place bets in presumptive hot spots, such as the social media space now defined by the likes of Facebook and LinkedIn. more detail please click here

Apple usurps Google as world's most valuable brand

Apple has overtaken Google as the world's most valuable brand, ending a four-year reign by the Internet search leader, according to a new study by global brands agency Millward Brown.

The iPhone and iPad maker's brand is now worth $153 billion, almost half Apple's market capitalization, says the annual BrandZ study of the world's top 100 brands.

Apple's portfolio of coveted consumer goods propelled it past Microsoft to become the world's most valuable technology company last year.

Peter Walshe, global brands director of Millward Brown, says Apple's meticulous attention to detail, along with an increasing presence of its gadgets in corporate environments, have allowed it to behave differently from other consumer-electronics makers.

"Apple is breaking the rules in terms of its pricing model," he told Reuters by telephone. "It's doing what luxury brands do, where the higher price the brand is, the more it seems to underpin and reinforce the desire."

"Obviously, it has to be allied to great products and a great experience, and Apple has nurtured that." Of the top 10 brands in Monday's report, six were technology and telecoms companies: Google at number two, IBM at number three, Microsoft at number five, AT&T at number seven and China Mobile at number nine.

McDonald's rose two places to number four, as fast food became the fastest-growing category, Coca-Cola slipped one place to number six, Marlboro was also down one to number eight, and General Electric was number 10.

Walshe said demand from China was a major factor in the rise of fast-food brands. "The Chinese have been discovering fast food and it's such a vast market -- Starbucks, McDonald's... and pizza has hit China," he said.

"The way McDonald's has reinvented itself, adapted its menus, added healthy options, expanding the times of day it can be visited, for example oatmeal for breakfast... that allied with growth in developing markets has really helped that brand." Nineteen of the top 100 brands came from emerging markets, up from 13 last year.

Facebook entered the top 100 at number 35 with a brand valued at $19.1 billion, while Chinese search engine Baidu rose to number 29 from 46.

Toyota reclaimed its position as the world's most valuable car brand, as it recovered from a bungled 2010 product recall. The survey was carried out before the March earthquake that caused massive disruption to Japanese supply chains.

The total value of the top 100 brands rose by 17 percent to $2.4 trillion, as the global economy shifted to growth.

Millward Brown takes as a starting point the value that companies put on their own main brands as intangibles in their earnings reports.

It combines that with the perceptions of more than 2 million consumers in relevant markets around the world whom it surveys over the course of the year, and then applies a multiple derived from the company's short-term future growth prospects.

The full report is at www.millwardbrown.com/brandz.

Skype, better with Facebook than Google?

 

As two Internet powerhouses slug it out to tie the knot with Skype, Facebook looks likely to be a more aggressive suitor than Google, and the world's largest social network may make for a better fit.

Reuters reported Wednesday that Facebook and Google are separately weighing partnerships with Skype, the popular web video telephony service used by millions around the globe for communication.
Talks with Facebook and Google are still preliminary, but any deal could involve an outright takeout or a joint venture partnership, two sources told Reuters.
A deal involving Skype, which is readying for an IPO, could be valued at $3 billion to $4 billion, the first source said. Skype's public offering is expected to raise about $1 billion, several other sources said.
Analysts and technology observers are betting on Facebook, in the belief the two make better companions and that Skype completes Facebook by providing assets it does not have.
"It's not surprising to me that both these companies are interested," said Eric Jackson, founder and manager of the investment firm Ironfire Capital. "It's a much more valuable asset to Facebook than to Google."
Google already has voice chat and video capabilities, though Skype is a more robust product, said Rory Maher, an analyst with Hudson Square Research.
It could incorporate Skype into Google Voice, and even get some social-media credibility after it failed in an attempt to do so with Buzz.
"There are benefits that Google has from combining Skype, but I think it's less clean than it is for Facebook," says Maher.
Conversely, Facebook has that much more incentive to snap up Skype because it would encourage people to spend more time on the site than they already do -- virtually the social network's raison d'etre.
"Communication is core to what Facebook users do," said Mo Koyfman, a principal at the venture capital firm Spark Capital. "Owning that platform would be very interesting."
Google, Facebook and Skype declined to comment.
THE ART OF SKYPE
Skype is still on track for an IPO later in 2011, raising as much as $1 billion by some estimates. That it has become the belle of the ball, attracting the interest of the Internet's two most dominant powers, bodes well for its debut.
Last year, Skype boasted about 124 million connected users every month by the end of June. But just 8.1 million were paying customers, using Skype to make calls to traditional phones at discounted rates.
The company was founded in 2003 and bought by eBay two years later for $3.1 billion. Ebay then sold a majority stake in Skype to an investor group in 2009, while keeping about a third of the company.
Now, both Skype and Facebook could tap new users worldwide while Facebook stands to gain a new revenue stream, Koyfman said.
Facebook had net income of $355 million in the first nine months of 2010 on revenue of $1.2 billion. It is one of a handful of Internet companies including Twitter, Groupon and Zynga that have stoked interest from investors eager to jump on the social media bandwagon.
And it has also put the big Internet guns -- including Google -- on alert.
Indeed, some speculate that Google could be bidding for Skype just to keep it out of the hands of other companies.

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