Skype had previously planned a share flotation Microsoft will confirm later that it has agreed to buy internet phone service Skype. According to some reports, the deal could be worth as much as $8.5bn (£5.2bn), which would make it Microsoft's largest acquisition.
Luxembourg-based Skype has 663 million global users. In August last year it announced plans for a share flotation, but this was subsequently put on hold.
It's a done deal: Microsoft will buy Skype, probably for a whopping $8.5bn. That's a lot of cash for an eight-year-old company that's not making a lot of money. So what's in it for Microsoft?
For starters, the firm gets well over 600 million users who make Skype the world's largest phone company for international voice calls. More importantly, Microsoft buys into a lot of potential.
Marry Skype's software with the Xbox Kinect and an HD television set, and Microsoft can make a powerful argument for getting into millions of living rooms.Think beyond teleconferencing for the whole family: there's one-on-one training, home schooling, even patient care delivered remotely and in vision.
Smarten it up for the corporate world, and Microsoft can challenge the telepresence business of firms like Cisco and Polycom.And Skype is multi-platform, reaching into the worlds of Apple and Linux.
Finally, Skype is mobile, and can be paired with Windows Phone 7.
The hitch: Microsoft boss Steve Ballmer will have to work hard to integrate Skype, to ensure the voice/video-over-the-internet company is not strangled by his firm's notorious bureaucracy.
Internet auction house eBay bought Skype for $2.6bn in 2006, before selling 70% of it in 2009 for $2bn.
Skype is now majority-owned by a group of investors, led by private equity firms Silver Lake and Andreessen Horowitz.
Analysts say Microsoft wants to buy Skype to improve its video conferencing services.
Although the reported price tag of $8.5bn would not stretch the US giant, some experts have questioned whether it is planning to pay too much for a company that has struggled to turn a profit. Michael Clendenin, managing director of consulting firm RedTech Advisors, said: "If you consider [Skype] was just valued at about $2.5bn 18 months ago when a chunk was sold off, then $8.5bn seems generous."[It] means Microsoft has a high wall to climb to prove to investors that Skype is a necessary linchpin for the company's online and mobile strategy." This view was echoed by Ben Woods, head of research group CCS Insight. "The big unanswered question is how do Skype assets work for Microsoft... how do you justify the price?" he said. Skype was founded in 1993.
Calls to other Skype users are free, while the company charges for those made to both traditional landline phones and mobiles.