Microsoft Sells Razorfish

Yesterday, Microsoft (MSFT) announced the sale of Razorfish, the digital advertising firm it received as part of the aQuantive acquisition in 2007. The consideration to be paid by Publicis Group, the acquirer, is around $530 million, partly in the form of cash and partly in 6.5 million Publicis Groupe treasury shares.

The agreement creates a win-win situation. Publicis Groupe gets to acquire a digital advertising company, which effectively transforms a quarter of its business to the digital model. With Internet usage increasing the world over, digital advertising is assuming increasing importance in today’s world. The price is also reasonable, given that the company generated around $400 million in revenues in 2008, and is expected to generate $360-370 million in 2009.

The revenue decline is recession-related and does not indicate loss of position at customers. In fact, Razorfish’s customer base is another positive, as the company serves several big names such as Ford Motor Co (F), AT&T (T), Kraft Foods (KFT), Best Buy Co. (BBY), Levi Strauss & Co. and Mercedes-Benz USA.

Microsoft has been toying with the idea of selling Razorfish for some time now. Several large advertising companies, such as Omnicom Group (OMC), Dentsu and Wausau Paper Corp (WPP) have expressed their desire to acquire the company. Microsoft appears to have been waiting for an opportune moment and the company is now set to capitalize on it.

In addition to the cash receivable, MSFT has worked a media buying relationship into the agreement. Publicis Groupe has agreed to buy a good bit of advertising and search on Microsoft properties. Depending on the volume of purchase, Publicis will also receive a discount.

The deal seems to underscore Microsoft’s seriousness about creating a position in online advertising, and appears to be a sequel to its agreement with Yahoo (YHOO). Google (GOOG) had better beware!

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