Investors Skeptical Of Microsoft's Skype Acquisition (MSFT)

Today's announcement that tech bell weather Microsoft

is acquiring internet phone service Skype for $8.5 billion is being met with skepticism. Although most observers agree that Skype is a wonderful company and asset, the price tag, on the surface, seems extravagant. Reuters is reporting that the deal is valued at around twice the expected value of a Skype IPO, which was in the works. Microsoft

has been having a very tough time pleasing investors for years, because of its seeming inability to determine if it is a growth company, or more of a mature, value story at this point. Microsoft has been beaten to the punch by the likes of Apple

and Google

in key markets such as mobile, search, and now tablet computing. Making matters worse, the company refuses to acknowledge that its innovation has been lacking and it may be time to change course. Where Microsoft wants to continue on a growth strategy, many institutional investors would rather see the Redmond, Washington based company begin to return cash to shareholders through stock buybacks and a much larger dividend while sticking to the "blocking and tackling" elements of their business. Microsoft has around $50 billion in cash and cash equivalents on its balance sheet earning next to nothing. The company currently pays out a $0.64 annual dividend which equates to a 2.50% yield at current levels. The stock price has also been extraordinarily disappointing to investors. Over the last 10 years, MSFT has lost more than 27%. On the 5-year chart, the shares are up 7.86% and the stock has lost 11.3% over the last 52-weeks. On the plus side, investors probably won't go broke holding MSFT, but things need to change for anyone to make any money. This is the backdrop that the company was facing before this Skype deal was announced. For this reason, on the surface, it almost looked like the company may have forced this deal a little bit, maybe to relieve some pressure. Unfortunately, it might end up backfiring. Whitney Tilson, who runs hedge fund T2 Partners and is a MSFT shareholder, told Reuters, "I wish they had not done it. Initially when I first read about it, I hated the deal. Now, I don't like it." He added, "Everybody I know uses it and I am glad Microsoft owns it. They just probably paid too much for it." The market had a similar opinion, as some investors voted with their feet on Tuesday, sending MSFT shares down 0.62% to $25.67. While the Skype brand and service have been hailed wholeheartedly as wonderful assets, the steep price tag as well as Microsoft's past acquisition failures have some investors concerned. Many observers believe that internal politics at the company will have a negative effect on Skype. The skeptics point to the company's $6 billion buyout of aQuantive in 2007 as a failure as well as problems with Hotmail and Danger. CEO Steve Ballmer preferred to look at the positives of the deal on Tuesday. He said that it would be accretive in the first year and that it would help sales of its other products such as the Xbox and Kinect motion-sensing system. He also noted that it could be a real game changer for Microsoft Office. "Will we sell a few more Kinects when we get these things hooked up? Yeah, I think so. Skype can help where we are in the enterprise by getting those customer bases to work well together."