US software giant Microsoft will buy internet phone service company Skype for US$8.5 billion (AU$7.9 billion), the companies have announced.
"Skype is a phenomenal service that is loved by millions of people around the world," Microsoft chief executive Steve Ballmer said in a statement.
"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."
Microsoft said Skype would become a new business division within Microsoft, and that Skype CEO Tony Bates would assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.
According to ZDNet Australia sister site CNET, Microsoft is set to make the most of its hefty purchase and will integrate Skype with a broad range of its products including Xbox and Xbox Live, Kinect, Windows Phone, Lync and Outlook.
Microsoft Australia's managing director Pip Marlow stayed up late to tweet the good news.
"Welcome to the family Skype!", she tweeted.
Microsoft's US$8.5 billion buyout of the internet telephony company trumps earlier speculation that pegged the value of the deal at an already staggering US$7 billion.