Microsoft Closes Deal on Razorfish

Microsoft and French advertising agency Publicis Groupe SA have finalized the sale of Razorfish, Redmond's digital-advertising subsidiary which it originally acquired as part of a $6 billion deal in 2007. Although Microsoft CEO Steve Ballmer predicted during that period that Microsoft would expand its advertising-services base and acquire a range of companies, the ensuing economic recession and PC-sales slump has forced Microsoft to consolidate around its software lines, including the upcoming Windows 7.

Microsoft has finalized the sale of its Razorfish digital-advertising subsidiary to French advertising company Publicis Groupe SA. Under the terms of the closing, announced on Oct. 14, Publicis Groupe will pay Microsoft some $286.8 million and 6.5 million shares of stock.
In return, Microsoft will gain a 3.3 percent stake in Publicis Groupe.
According to a joint statement released on the Publicis Groupe Website, Razorfish "is the second largest interactive advertising agency (Ad Age) in the U.S. with approximately FY June 30, 2009 revenue of $380 million." Previous clients have included Nortel, Disney, McDonald's and Mercedes-Benz.
First acquired by Microsoft as part of its $6 billion takeover of aQuantive in 2007, Razorfish was originally intended to bolster Redmond's efforts in building a substantive online advertising platform. Other advertising and publishing tools acquired as part of the aQuantive deal included DrivePM, which matched ad campaigns to publisher inventory.
However, Microsoft's search-and-advertising partnership with Yahoo, which will see the latter take over worldwide search-ad sales for both companies, may have transformed Razorfish into something of a corporate misfit. On Aug. 9, Microsoft announced that it would sell the division to Publicis Groupe for $530 million in cash and stock.

As originally laid out, that deal will give Microsoft access to Publicis Groupe clients and offer them display and search advertising "on favorable terms" for a five-year period.

"We are grateful for the contributions that Razorfish has made to our online advertising business since joining the company," Microsoft CEO Steve Ballmer said in an August statement announcing the deal. "We look forward to continuing to work with Razorfish as one of our agencies."

The original aQuantive deal came during a period in which Microsoft predicted it would purchase around 20 companies-ranging in size from $50 million to $1 billion-over a five-year period. The original hope was that Microsoft would be able to craft an advertising platform that would provide the company with a substantial revenue stream.

However, since 2007, a global economic recession and accompanying slump in PC sales has forced Microsoft to consolidate its holdings and re-focus its corporate strategy around certain key software lines, including the upcoming Windows 7 and Office 2010.