Microsoft announced on Tuesday that it is to buy out internet phone company Skype from an investor group led by Silver Lake for $8.5 billion, in the computer software company’s largest-ever takeover.

“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft chief executive Steve Ballmer said in a statement issued from Microsoft headquarters in Redmond, Washington.

“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.” Skype would become a new business division within Microsoft, with Skype chief executive Tony Bates as president of the Microsoft Skype Division, Microsoft said.

“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” Bates said.

“Together, we will be able to accelerate Skype’s plans to extend our global community and introduce new ways for everyone to communicate and collaborate,” Bates said.

The deal boosts Microsoft’s ailing smartphone business. Skype had reportedly also been in talks with Google and Facebook.

Skype account holders can make free telephone and video calls using the internet. The company derives its income from calls to and from landlines. It has more than 550 million registered users worldwide.

In 2005, the online auctioneer eBay acquired Skype from its developers for 2.6 billion dollars. It sold the company for 1.9 billion four years later, after it became apparent that the internet telephone company was not suited to the online trading platform.

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