Microsoft in [pounds sterling]5.2bn deal to buy Skype.(Business)

Byline: Simon Duke

MICROSOFT has agreed the most expensive takeover in its 36-year history in the technology giant's latest bid to boost its loss-making internet division.

The software group yesterday splashed out [pounds sterling]5.2bn on Skype, a website that allows users to call each other for free over the internet.

Microsoft made its surprise move after a series of expensive investments have failed to reduce Google's overwhelming lead in the fast-growing online advertising market.

Chief executive Steve Ballmer is trying to bring Microsoft into new markets to counter the growing threats to its mainstay computer business.

Profits from its Windows operating system are expected to fall substantially over the coming years as consumers replace their PCs and laptops with sleek tablet computers, such as Apple's iPad.

Ballmer hopes that Skype's technology will bolster the company's array of online busi -nesses, from its Xbox and Kinect games consoles to its Hotmail service.

Skype will also become a bridgehead in Microsoft's ongoing battle to establish itself in the mobile phone arena, where it has been comprehensively outplayed by Apple and Google.

The deal will barely put a scratch in Microsoft's cash pile, which stood at a colossal [pounds sterling]31bn at the start of April.

Still, many analysts believe Microsoft is vastly over-paying for a company that lost [pounds sterling]5m last year, has just 145m monthly users and, by Ballmer's admission, boasts only a 'nascent' online advertising business.

Andrew Bartels of the respected Forrester Research consultancy said: 'This doesn't make sense at all as a financial investment.'

The deal will trigger a huge return for the owners of Skype, which include investment firm Sliver Lake and online auction giant eBay, which bought Skype for around [pounds sterling]2bn in 2005 only to off-load a two-thirds stake in 2009.

Tony Bates, Skype's Britishborn chief executive, is also in line for a large windfall.

He was handed stock options worth [pounds sterling]12m when he joined Skype in October when the company was aiming for a [pounds sterling]2.5bn float.

But the 43-year-old's share package is thought to be worth twice that amount following yesterday's blockbuster takeover.