Professor Elam

Wed May 11, 2011

Here is another view on the Skype purchase by MSFT. Yes they paid more but 

they paid much less per user than the last buyer.   It works the same way with a media buy. The big radio station in any town charges more for their ads than the small stations. But on a per listener basis, you are paying less per listener, and getting more listeners. And as this article shows, this is only 50 days of free cash flow for MSFT. This is  a good example of my exhorting the class to read for context. Reading articles like this helps explain what we study in class. 

Now, can they do anything with it?

As the morning marches on, I spotted this article in the WSJ. Again this kind of reading widens your contextual knowledge of accounting, The article notes that MSFT did this with offshore money. This way they did not have to bring the money back to the US and take a huge 30% or more haircut with federal taxes. So that provided another reason to do the deal. 

http://online.wsj.com/article/SB10001424052748703730804576314854222820260.html?mod=ITP_pageone_0