Silver Lake Said to Reap Three-Fold Return on Skype After Sale

Silver Lake stands to reap a three- fold return on its investment in Skype Technologies SA, which Microsoft Corp. (MSFT) today agreed to buy for $8.5 billion in cash, according to a person briefed on the deal.

Silver Lake, part of the group that bought a majority stake from EBay Inc. 18 months ago in a transaction valuing Skype at $2.75 billion, put up $900 million in capital, said the person, asking not to be named because the information is private. The firm’s 40 percent stake is now worth $3.1 billion, when adjusting for $775 million in debt Skype reported in April.

Microsoft today agreed to buy Skype, the world’s most popular Web-calling service, to attract users and narrow Google Inc. (GOOG)’s lead in Web advertising. A purchase would divert Skype, which is based in Luxembourg, from a plan announced in August to sell $100 million of shares in an initial public offering.

The private-equity owners have boosted the number of users and hired a new chief executive officer, former Cisco Systems Inc. executive Tony Bates. They also helped settle a legal dispute between EBay and Skype’s founders.

“Skype sits at the intersection of social, mobile and video communication over the Internet,” said Egon Durban, who led the investment for Menlo Park, California-based Silver Lake. “But it was an orphaned division of a public company and needed some attention.”

Reviving Online Services

Jennifer Farrelly, a spokeswoman for Silver Lake, declined to comment on the firm’s returns. Meghan Cross, a spokeswoman for Skype, didn’t immediately return a call seeking comment.

While the number of registered users grew 40 percent to 663 million last year, Skype has struggled to convert them into paying customers at the same pace, according to regulatory filings. The company had a net loss of $6.9 million last year and said in a filing last month that it “may not achieve profitability in the coming years.”

Microsoft Chief Executive Officer Steve Ballmer is aiming to revive Microsoft’s online services division, which had an operating loss of more than $700 million in the three months that ended in March. The company lags behind Google in Web search and related advertising.

To contact the reporter on this story: Cristina Alesci in New York at calesci2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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