Microsoft and Its Foreign Cash Holdings
When Microsoft announced that it would be purchasing the Internet communications company
Skype for $8.5 billion less than a decade after its origin, many people in the technology industry
took notice. When the deal was announced as an all-cash deal, shareholders and taxpayers in the
United States also started wondering. Why would Microsoft buy Skype using all cash, and where
does Microsoft have such large cash reserves?
But, let’s backtrack: Skype was founded in 2003 by two Scandinavians—Janus Friis from Denmark
and Niklas Zennström from Sweden. The Skype software was created by Estonians Ahti Heinla,
Priit Kasesalu, and Jaan Tallinn. At this time, Skype is an instant messaging app that can manage
both text messages and video chat services. Users may transmit both text and video messages,
and they can exchange digital documents such as images, text, and video via the Skype software
on a computer or app via various gadgets (e.g., smartphones). Skype also allows video conference
calls.
After the sale, Skype was incorporated as a division of Microsoft. The acquisition was the largest
in Microsoft’s history at that time (2011). Skype had been purchased by eBay in 2005 for $3.1
billion, but eBay took a $1.4 billion accounting charge in 2007 after the acquisition failed to realize
hoped-for synergies. In 2009, eBay sold a 70 percent stake in Skype to a group of investors led by
the U.S. private equity firm Silver Lake Partners. The sale to Silver Lake valued Skype at $2.75
billion. Many observers were surprised that only 18 months later, Microsoft was prepared to pay
