Software titan Microsoft Corp. announced Tuesday it has reached an agreement to purchase Internet phone service Skype for $8.5 billion in cash from a group of investors led by Silver Lake.

"The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities," the two companies said in a statement.

Both boards of directors have approved the deal, according to the press release.

Luxembourg-based Skype has roughly 170 million connected users and carried more than 207 billion minutes of voice and video conversations in 2010.

"Skype is a phenomenal service that is loved by millions of people around the world," Microsoft CEO Steve Ballmer said in announcing the transaction. "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."

Once the acquisition is finalized, Skype will become a division of Microsoft headed by the phone service's current chief executive, Tony Bates, who will report directly to Ballmer.

"Microsoft and Skype share the vision of bringing software innovation and products to our customers," Bates said in the statement.

"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," he said.

The Skype acquisition is the largest in the history of Microsoft, a 36-year-old enterprise headquartered in Redmond, Washington.

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