Microsoft’s acquisition of Skype

The case provides a good opportunity to discuss valuation issues in a fast-growing company in the high-tech industry. The acquisition was undoubtedly expensive. But how did Microsoft arrive at that price? Let us go back to valuation basics. What was the value of Skype at the time? Although it was a private business, Skype was ready to go to public in 2010 and therefore some inside information is available about its financial performance. Based on these documents as well as analysts’ reports, participants can learn how to justify a firm’s valuation by using the discounted cash flow method. Both Microsoft and Skype were large-sized companies operating in the technology sector. The case also provides a good opportunity to discuss the characteristics of the industry in general as well as the strategic/synergistic fit of these two companies.