CPPIB to Profit From Microsoft-Skype Agreement

(May 10, 2011) — Microsoft has announced plans to buy Internet phone service company Skype — which emerged in 2003 with currently about 663 million registered users — for $8.5 billion.

The Canada Pension Plan Investment Board (CPPIB) is well-positioned to profit from this deal. In late 2009, the Canadian pension was part of an investor group that purchased a 65% stake in Skype from eBay for roughly $1.9 billion — a deal that became one of the top five private market transactions worldwide in 2009. That year, CPPIB participated in two other massive deals: the $5.2-billion purchase of IMS Health with Texas Pacific Group and the $2.1-billion deal for Macquarie Communications Group.

While CPPIB’s $300 million investment in the technology firm buyout was against the norm — as the pension has traditionally flocked to investments such as power grids, airports, and toll roads — it has proven to be a wise one. “At this point if the [Microsoft] transaction closes, we will see a gain of just over three times our investment,” CPPIB spokesperson Linda Sims told aiCIO.

The moves by CPPIB and now Microsoft reflect continued efforts to gain a more robust foothold in the online arena, which has been dominated by Google and Facebook.

“This acquisition represents an opportunity to acquire a leader in the rapidly growing internet telecommunications market and one of the most strategically valuable internet brands in the marketplace. We look forward to working with our partners to help grow Skype in this accelerating industry,” Mark Wiseman, Senior Vice‐President, Private Investments with the CPP Investment Board, stated following the 2009 agreement.

The current $8.5 billion deal is Microsoft’s largest ever, the Wall Street Journal first reported. The deal will leave eBay with $2.55 billion for its 30% stake in Skype. Skype cofounders Niklas Zennström and Janus Friis will take home about $1.19 billion for their 14% stake. CPPIB, along with private equity firms Silver Lake and Andreessen Horowitz own a stake worth $4.76 billion, or 56% of the company.

“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft chief executive Steve Ballmer said in a statement announcing the definitive agreement. “Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.”