MICROSOFT’S ACQUISITION OF SKYPE Harvard Case Solution & Analysis

On 10 May 2011, Microsoft announced that it would buy Skype for $8.5 billion. The price tag was certainly high - roughly ten times Skype's revenues in 2010 ($860 million), approximately double its recent appraisal. In late 2009, eBay sold the bulk of its stake in Skype to an investor group led by Silver Lake Partners at a valuation of around $2.75 billion. So what was the reasoning supporting the deal? How did Microsoft ultimately arrive at that cost? Why was it willing to pay this type of sizable sum of money? The brand, the networking, the technology, the potential strategic and product synergies...? Learning objectives: The case gives a great opportunity to discuss valuation problems in a fast-growing business in the high-tech sector. The acquisition was certainly pricey.

But how did Microsoft arrive at that price? Let's go back to valuation fundamentals. What was the worth of Skype at the time? Skype was prepared to visit people in 2010, though it was a private business and so some inside information can be found about its fiscal performance. Based on these documents together with analysts' reports, participants can understand by making use of the discounted cash flow approach, how to justify the valuation of a company. Both Skype and Microsoft were not small -sized businesses operating in the technology sector. The case also provides a good opportunity to talk about the tactical/synergistic burst of both of these firms as well as the features of the sector in general.

PUBLICATION DATE: April 30, 2013 PRODUCT #: IMD574-HCB-ENG

MICROSOFT'S ACQUISITION OF SKYPE Case Study Solution

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