Paris — The French media and advertising heavyweight Publicis Groupe SA has made a deal with Microsoft to acquire its Razorfish ad agency and boost its position in digital communications, for $530 million in cash and stock, the companies announced Sunday.
“The acquisition of Razorfish is another step forward in visualizing our strategic vision of building a world leader in digital communications,” Publicis Groupe Chairman and Chief Executive Officer Maurice Levy said in the statement.
The companies also announced the signing of a five-year strategic partnership agreement that will come into effective at the closing of the deal, expected in the fourth quarter and subject to regulatory approval. The acquisition is expected to be paid for with a combination of cash and Publicis treasury shares.
Razorfish will continue to conduct business under its own brand name and stay on to serve as Microsoft’s “preferred provider” for Internet advertising, the companies declared Sunday in a joint statement.
“Once this acquisition is complete, about a quarter of our revenue will come from digital communication and our ability to grow and conquer will be reinforced,”added Levy.
This strategic partnership extends a broad cooperation pact that the two companies announced in June. The agreement allows Publicis client agencies to buy display and search advertising from Microsoft on favorable terms, in exchange for guaranteed aggregate purchase levels, and contains provisions for Microsoft to spend a minimum amount for those services, the companies said in a statement.
“We look forward to continuing to work with Razorfish as one of our agencies, and we are confident that as a part of Publicis Groupe, Razorfish will build on its success to date in the digital advertising industry,” said Microsoft CEO Steve Ballmer, in a joint statement from the two companies.
The US software giant, after the sale of Razorfish will hold three percent of the capital of Publicis, the world’s fourth-largest ad group, and thus become one of its main shareholders, Levy added in a conference call.
Publicis will issue 6.5 million treasury shares to the software giant, worth 162 million euros ($232.6 million) at Friday’s closing price, and pay the rest in cash from its ample liquidity position.
Publicis Groupe is one of the world’s largest media and advertising companies, employing about 44,000 people at advertising networks Leo Burnett and Saatchi & Saatchi, as well as media buyers Starcom MediaVest Group and ZenithOptimedia.
The group, based in Paris, competes with Britain’s WPP Plc and Japan’s Dentsu Inc. in the final bidding from an original field of some eight parties interested in the Microsoft unit.
“The price paid was the result of an auction process,” Levy told reporters on a telephone conference from the south of France. He said the transaction valued Razorfish at some 1.4 to 1.5 times the revenues, which he called in line with sector deals.
Microsoft acquired Razorfish in 2007 when it bought aQuantive, a digital marketing services company, for about US$6 billion in order to compete better with Google. The aQuantive deal for Microsoft was the largest ever and highlighted the importance of supporting more-advanced advertising products and technologies across areas including media planning, video on demand, and Internet Protocol television.
As a matter of fact, the acquisition of Razorfish was so deeply considered to be an important one — as a way to give Microsoft a new spirit in the ad services business and also help promote its rich media and video plug-in Silverlight.
Microsoft’s bitter rivalry against Google has taken many twists and turns, and hit a major milestone on July 29, when after a year and a half of negotiations it struck a deal with Yahoo under which Microsoft’s Bing search engine will power Yahoo’s search site, and Yahoo will sell premium search advertising services for both companies.
The sale is expected to close before the end of the year and is set to be paid in a combination of cash and delivery of 6.5 million Publicis Groupe treasury shares, the French company said.
Two and a half years after buying the American firm Digitas, Publicis is with the purchase of Razorfish continuing its push into the digital sector.
Razorfish will continue to operate under its brand name.