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When a merger takes place, two or more firms usually combine their operations and run as a single business entity. In other words, one firm ceases to exist while another one survives. On the other hand, when one business organization assumes the controlling interest of another organization, it is referred to as an acquisition.
Why did the acquirer buy and why did the acquired sell?
Skype was sold to Microsoft in 2011 because it had not reached an attractive profitability level. Microsoft bought the VoIP Company because it had better prospects of growth. Secondly, Microsoft acquired Skype so that it could be in a position to avoid taxation in the United States ([email protected] 2013, p.1). When multinationals earn profit outside the United States, they are not obliged to pay taxes. However, they are liable to taxation if such profits are repatriated back to the country.
What are the strategic rationales?
Increasing the users of Skype to one billion daily was one of the strategic rationales of Microsoft when it acquired Skype. This would boost the profitability of the new business division. Secondly and as already mentioned, the acquisition of Skype would enable Microsoft to legally evade tax in the domestic market. Microsoft is also planning to incorporate Kinect into Lync (DePamphilis 2008, p.1).
This will boost the experience of users in the virtual world and therefore increase the profitability of the new acquisition. In addition, over 8 million Skype users are charged for the services by the service. Hence, it is a more profitable platform than windows live messenger at Microsoft.
Are they industry- and/or firm-specific?
The acquisition of Skype by Microsoft is largely firm-specific because it involves one company buying the assets and liabilities of another one.
How was the merger/acquisition financed?
The acquisition was completely financed by Microsoft from the foreign profits reserves. Since foreign profits are not taxed (unless repatriated back to the country) according to the US taxation laws, it was easy for Microsoft to use this reserve to finance the $8.5 billion budget (Jilani 2013, p.1)
DePamphilis, D 2008, Mergers, Acquisitions, and Other Restructuring Activities, ElsevieAcademic Press, New York.
Jilani, Z 2013, Microsoft Structured Acquisition Of Skype To Avoid U.S. Taxes. Web.