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Microsoft's Hidden >20% Discount in the Purchase of Skype


I really liked Ars Technica's write up on MSFT acquiring Skype - and generally I have to agree. I think that Microsoft generally has enormous assets internally that they cannot properly leverage because they are too bogged down with the existing business lines, and Windows Live Messenger (too many names!!) which has more users TODAY than Skype would have in years, is a perfect example of that. You want Skype integrated into Xbox Live? Guess what already is ... Windows Live Messenger. 

However, there is a huge item that everyone seems to be ignoring that reprices the acquisition dramatically.

The deal consideration is $8.5 billion in cash, and because Skype is based in Luxembourg, Microsoft will be able to pay for the deal with cash that is abroad and has not been repatriated to the U.S. This is significant because it allows Microsoft to deploy foreign cash without incurring the taxes associated with repatriation. Repatriating $8.5 billion of cash to the U.S. would potentially result in a U.S. tax bill in excess of $1.5 billion. [Seeking Alpha]

This means that they were actually able to bid right down the center of what everyone else (Google, et al.) were going to bid as well.

That said, could they have put that $8.5 B to better use funding 8500 (!) European startups at $1M a piece and taking the GM of Windows Live Messenger and giving him/her reporting authority straight to Ballmer? You bet.

 

Posted about 2 years ago

4 responses

Chookster said
Good catch. So I guess only hideously overpriced instead of viciously overpriced. This is par for the course for Ballmer. Last time he came to our office he kept talking about the imperative to make huge risky bets. But I think, as you rightly state, he'd be better of making many smaller ones.
David Aronchick said
It just doesn't make sense. Who's advising them? I knew lots of folks who should have been in these divisions, but they seemed pretty rational.

Seriously, where is the $1B Startup fund? I love how many commentators talked about how little money this was for MS, that they throw off that much every quarter. Like because they make that much money, it's NOT that big a deal? It's a fuck ton of money! Do something better with it!

Chookster said
The guys I knew were rational too but two problems with that. One, Ballmer (along with Gates) wanted deals done so they did them. Two, No one views a big deal that goes bad as bad when you are in M&A. A bad deal is one that doesn't happen. All of those guys are happy to put "Skype acquisition" on their resume because no one ever is going to say, "But that acquisition returned 1.3% of investment".
David Aronchick upvoted this