Cisco rumored to acquire pre-IPO Skype for $5 billion in cash

Cisco is rumored to have made an offer to acquire Skype before they complete their IPO process. Skype has filed for an initial public offering early this month, setting up what could be one of the biggest technology IPOs of the year.

Having launched its own Google Talk service to compete with Skype last week, Google is also rumored to be sniffing around Skype, but antitrust would be a big hurdle to overcome. Skype’s IPO documents say it plans to raise up to $100 million in the offering but the resulting equity value could be in the billions of dollars. To intercept an IPO Cisco would have to pay up a significant premium.

Last year Ebay sold Skype after a series of legal disputes between Skype’s management, its founders and Ebay. In the end, Ebay received $1.9 billion for the company and retained a minority stake, much less than the $2.6 billion it paid for the company in 2005.

Skype has registered users rose to 560 million but mostly it has been a free service with about 8 million using the service and paying for about $100 a year. I have been a paying member of the service for 10 years recommending it to all my friends. It is one of those tools that makes the world even more flat. Skype, which last year became the largest carrier of international calls, generated in the first half of this year about $400 million in sales and net income of just $13 million.

Stagnant hardware titan Cisco is flushed with cash but it needs more acquisitions to beef up higher margin services business.  The Akbas Post has signaled a new wave of services M&A activity back in April this year. Cisco already offers telephony services branded Webex but it does not have the global reach of Skype. However this move would put Cisco in direct competition with its own corporate customers.

Tell your colleagues your first heard it on www.akbaspost.com and follow @TheAkbasPost