BREAKING NEWS – Microsoft Will Announce Acquisition of Skype Tuesday Morning

Microsoft Corp (MSFT) will announce the acquisition of Skype, the online telephony and video communications giant, on Tuesday morning. This will be Microsoft’s most aggressive acquisition in the digital space, an $8.5 billion deal, counting in the Luxembourg-based company’s debt.

Buying Skype — a service that connects millions of users around the world via Internet-based telephony and video — would give Microsoft a recognized brand name on the Internet at a time when it is struggling to get more traction in the consumer market.

With Skype, which has been aggressively expanding, Microsoft will continue to lose money in its Internet efforts. Skype lost $7 million on revenue of $860 million. Operating profits, which Skype preferred to highlight, were $264 million, however with debt counting $686 million.

But, sources said, the concept is bigger than just money, including getting access to Skype’s 663 million registered users.

Skype, which had been headed bumpily towards an IPO until now, will apparently be integrated into Microsoft’s Windows Live and other online communications efforts in both the consumer and enterprise arenas, sources said.

Microsoft Chief Executive Steve Ballmer, sees the Internet as an essential battleground for Microsoft, a company that still makes the vast bulk of its profits from Windows and Office software systems. Investors have become increasingly concerned about Microsoft’s ability to squeeze continued growth out of those businesses, as rival technologies from Apple Inc., Google and others put more pressure on profits.

Skype has had a big-company owner before–eBay Inc. paid $2.6 billion in cash and stock for it in 2005, as a way for the auction site’s buyers and sellers to communicate.

Skype has since gotten cleaned up enough to attract Microsoft.

Other suitors have looked at Skype, including Google, although acquisition interest by Facebook was very much overblown, said several sources.

Interest in Skype by Microsoft was first reported by GigaOm’s Om Malik on Sunday.

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