Microsoft Will Acquire Ad Company AQuantive

  |  May 18, 2007   |  Comments

UPDATE: Ad industry buying spree builds with Microsoft's deal to acquire aQuantive for $6 billion.

In the wake of Google's pending acquisition of DoubleClick and WPP's agreement to purchase 24/7 Real Media, Microsoft said it will acquire aQuantive for $6 billion. The move will help the software maker catch up to rivals including Yahoo and Google in the online ad space.

Microsoft will pay $66.50 per share in an all-cash transaction valued around $6 billion, 85 percent more than aQuantive's closing price yesterday. Microsoft confirmed aQuantive will be its largest purchase ever, due to a competitive bidding situation. The pending Google acquisition of DoubleClick is valued at $3.1 billion; the Wall Street Journal reported Microsoft had also bid for DoubleClick, but failed to close the deal.

"We expect aQuantive's platform to enhance our current advertiser platform to provide solutions for ad agencies and publishers, helping Microsoft become an industry-leading advertising platform and increasing our capabilities to build and support next generation advertising solutions and platforms such as cross-media planning, video-on-demand, and IPTV," said Adam Sohn, director of Microsoft's online services group.

Microsoft says adding aQuantive under its umbrella is complimentary to its existing businesses. However, it maintains Google's acquisition of DoubleClick will unfairly dominate the market.

"The Microsoft aQuantive transaction will promote competition, and the Google DoubleClick transaction will reduce competition," said Kevin Johnson, president of platforms and services division at Microsoft, on an investor conference call. "Consider on the one hand that aQuantive today is in three lines of business...Microsoft today is in none of those businesses. That's why this acquisition will increase competition."

The DoubleClick deal holds different market conditions, he says. "Google and DoubleClick, in contrast, have strongly overlapping businesses in serving ads to third-party Web publishers on the Internet. Indeed as we've estimated and we've shared, we believe that acquisition will give the combined entity 80 percent or more market share in that market, and for that reason and among others we believe and continue to believe that transaction will reduce competition," Johnson said.

Both pending transactions are subject to Hart-Scott-Rodino (HSR) review approval before either can be completed. The aQuantive deal is expected to close in the first half of Microsoft's fiscal year 2008.

Microsoft executives said on a conference call today that it had bested other unnamed bidders for the right to acquire aQuantive, founded in 1997 by Chairman Nicolas Hanauer and Chief Strategy Officer Michael Galgon.

AQuantive is the parent company of Avenue A|Razorfish, Atlas, and DRIVEpm. The company just reported Q1 earnings growth in each unit. Brian McAndrews, president and CEO of aQuantive, said the company would be "the only independent third-party ad-serving product in the marketplace," if the DoubleClick deal goes through.

Pressure to acquire aQuantive's business may have come from several recent merger announcements in addition to DoubleClick. AOL this week announced the purchase of AdTech AG. WPP made plans to buy 24/7 Real Media just one day before the aQuantive news.

Atlas' ad management platform is expected to provide a dashboard for media buyers to plan and buy across all digital media. "This is a new market in which we do not operate today at Microsoft," said Joe Doran, the general manager of Microsoft Digital Advertising Solutions. "The media planning, buying and management of interactive media today is extremely difficult and not cost efficient. We see interactive media becoming more complex with the convergence of IP-based media. There is tremendous opportunity for Microsoft to drive innovation in the dashboard to make interactive buying and selling easier, faster and more efficient for our customers."

To build into other platforms, Microsoft recently purchased mobile ad network ScreenTonic. Last year it acquired in-game ad network Massive.

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Enid Burns

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