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Microsoft In $7B Skype Deal? Oh, How They Laughed When eBay Paid $2.6B (Update)
Posted by Tiernan Ray
The Microsoft (MSFT) -for-Skype rumor is gaining ground.

GigaOm’s Om Malik earlier today offered a recap of rumors that “have been swirling around Skype” for a week now, with Reuters having written that Google (GOOG) and Facebook were looking for a deal with the Internet calling firm, or maybe looking to buy it. Malik wrote that Microsoft “has entered the mix.”

And tonight, The Wall Street Journal’s Anupreeta Das and Nick Wingfield are writing that Microsoft is “close to a deal to buy Internet phone company Skype Technologies SA for more than $7 billion,” citing anonymous sources.

Negotiations have been “wrapping up” this evening, they write.

eBay (EBAY), which bought Skype for $2.6 billion in October of 2005, later sold the company in November of 2005 for $1.9 billion in cash, for a net gain of $1.4 billion, and a 30% stake in Skype to private equity shop Silver Lake, the Canada Pension Plan Investment Board, and venture firm Andreessen Horowitz in a leveraged buyout.

eBay listed its 30% stake at $620 million in last year’s 10-K filing, implying a value of roughly $2 billion for Skype.

Obviously, then, a Microsoft bid of this size would represent not just a premium t0 recent valuation, but multiples of the 2009 buyout, if it happens.

Some people thought eBay was crazy when they paid $2.6 billion in 2005, and there were also stories from Silicon Valley that some Skype backers at the time thought they should have asked for much more.

Microsoft ended the fiscal Q3 in March with $50 billion of cash, cash equivalents and short-term investments, and long-term debt of $12 billion.

Remember that bidding for Skype has been a spectator sport for some time. Back in August of last year, TechCrunch reported Cisco Systems (CSCO) was interested, which was then refuted by sources, Eric reported the next day.

Malik himself proposed back in September that Facebook should buy the company, and that it might have to pay $7 billion to $7.5 billion.

Remember, too, that Skype filed for a $100 million public offering last August, led by Goldman Sachs, JP Morgan, and Morgan Stanley, which has since been amended multiple times. The latest version, filed last month, lists $860 million in revenue for all of 2010. That would represent 20% revenue growth from the $719 million the company reported in 2009.

Effectively, then, Microsoft would be paying on the order of seven or so times trailing revenue. Skype had a pre-tax loss of $57 million in 2010, according to the filing.

The prospectus from April also records $690 million in long-term debt that was racked up to facilitate the leveraged buyout in 2009, against $142.5 million in cash and equivalents.

Microsoft shares ended the day down 4 cents at $25.83.

Update: All Things D’s Kara Swisher reports tonight sources tell her the deal is done and will be announced early in the morning. Skype is to be integrated with Microsoft’s Windows Live service. Swisher says reports of Facebook’s interest in Skype were “overblown,” according to her sources.

And Andrew Ross Sorkin and Steve Lohr of The New York Times’s DealBook report sources are saying the price tag is $8.5 billion, including the assumption of the debt.