The Work

May 10, 2011 2:59 PM

Microsoft to Add Skype in $8.5 Billion Deal

Posted by Tom Huddleston Jr.

Looking to expand its online communications offerings, Microsoft Corporation said Tuesday that it will pay $8.5 billion for Skype Global, the Internet voice and video chat service.

The all cash deal--Microsoft's largest acquisition ever--would give the software giant a leading communications brand to partner with its other products such as Outlook, Lync, and Xbox LIVE. Skype, which offers free messaging and paid landline calling options, had 170 million users pile up more than 207 billion minutes of voice and video conversations last year.

Redmond, Wash.-based Microsoft retained Covington & Burling, Cadwalader, Wickersham & Taft, and Simpson, Thacher & Bartlett.

An M&A team from Simpson Thacher also advised the company on its attempted bid for Yahoo Inc., in 2008, while Cadwalader partner Charles "Rick" Rule led the way with the antitrust work on that deal. Rule and partner Jonathan Kanter are serving as antitrust counsel to Microsoft on the Skype deal as well. Simpson Thacher's team for the Skype deal is led by corporate partners Charles "Casey" Cogut and Alan Klein, as well as compensation and benefits partner Gregory Grogan.

San Francisco-based Intellectual property partners Evan Cox and Bruce Deming are taking the reins for a Covington team that also spreads to Brussels, London, and Washington, D.C. Other lawyers from the firm include partner Yaron Dori and special counsel Miranda Cole on telecommunications issues; data privacy partners Dan Cooper and Henriette Tielemanns; antitrust partner Lars Kjølbye; and patent partner Michael Markman.

Microsoft's general counsel, Brad Smith, is a former Covington partner. He left the firm in 1993 to join the software company.

In 2009, eBay, Inc., sold its controlling interest in Luxembourg-based Skype to a group of investors led by the private equity firm Silver Lake Partners for $1.9 billion. EBay paid roughly $3 billion for the service in 2005, but later scrapped plans to integrate Skype into the company's auction Web site. A Sullivan & Cromwell team advised the Silver Lake-led group on its acquisition of the 65 percent stake in Skype.

S&C is now counsel to both Skype Global and Silver Lake on the Microsoft deal. A corporate team led by London partner Richard Morrissey, Los Angeles partner Alison Ressler, and Palo Alto partner Sarah Payne. Also on the deal: IP partner Nader Mousavi; antitrust partner Steven Holley; tax partners Andrew Solomon and Eric Wang; and partner Matthew Friestedt and special counsel Michael Katz handling benefits matters. Neal Goldman is chief legal and regulatory officer for Skype.

Skadden, Arps, Slate, Meagher & Flom is counsel to Skype founders Niklas Zennström and Janus Friis, as well as to their company Joltid Limited, which is also a Skype shareholder. M&A partners Michael Gisser and Rick Madden are part of Skadden's team, along with litigation partner Lance Etcheverry, tax partner Michael Beinus, and benefits partner Joseph Yaffe. Gisser also represented the founders in connection with the 2009 eBay-Silver Lake transaction. 

The deal, which has been approved by the boards of both Microsoft and Skype, is expected to close by the end of the year. 

Skype recorded more than $850 million in revenue last year, but lost $7 million. Facebook and Google both considered buying the company, The New York Times reports.

The Times' DealBook breaks down what each major Skype shareholder could reap as a result of the Microsoft deal. (In addition to Silver Lake, the investor group includes eBay International AG, CPP Investment Board, and Andreessen Horowitz.) For instance, eBay still owns a 30 percent stake that is valued by the offer at $2.3 billion, which would give the auction site-owner north of $4 billion in total on its sale of Skype. 

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