WPP Group plc (NASDAQ:WPPGY) and Microsoft Corporation (NASDAQ:MSFT) are currently in talks about the sale of aQuantive’s Avenue A/Razorfish.  When Microsoft acquired aQuantive, Inc. last year for about $6 billion, the software giant company also absorbed the Avenue A/Razorfish subsidiary.

Avenue A/Razorfish has the ad-serving technology that powers WPP’s subsidiary, 24/7 Real Media.  Microsoft is considering exchanging Avenue A/Razorfish to WPP in exchange for access to 24/7’s Open AdStream services and cash.

“There remains a limit to the available talent that can be hired to pursue the rapid increase in interactive marketing-communications programs that customers are demanding,” stated John Prunier, co-founder of Petsky Prunier,  an M&A advisory company.  “In order to meet that need, agency holding companies and other marketing-communications businesses are going to have to acquire businesses/agencies that possess those skills.”

Of all of aQuantive’s subsidiary companies, Avenue A/Razorfish generates 60% of the revenue.  Given aQuantive’s revenue of $345 million over the last year, Avenue A accounted for about $69 million.  And based on the assumption that digital ad agencies are typically valuated at 10 times the amount of their annual revenue, Avenue A becomes worth close to $800 million.  For that price, it does not become worth selling.  This is why Microsoft is considering sharing assets with WPP rather than just cash and stock options.

To make the deal even more complicated, Yahoo! Inc. (NASDAQ:YHOO) has a multi-year advertising partnership with 24/7 Real Media.  And Google Inc. (NASDAQ:GOOG) also has an advertising partnership with Yahoo!  Throw Microsoft in the mix as a potential 24/7 Real Media partner and that just makes things more interesting for WPP.

Related Link:
1. AdAge

Microsoft just poached a Google client big time. InterActivCorp is the owner of Ask.com, Excite.com, Expedia.com, Hotwire.com, iWon.com, Live Daily, Match Ticketmaster, TicketWeb, Match.com, Citysearch, and Evite.com. And InterActivCorp just left Google’s DoubleClick and signed with Microsoft’s aQuantive. Both DoubleClick and Google are digital advertising companies. Google announced that they were buying DoubleClick for $3.1 billion on April 13, 2007 and Microsoft announced that they were buying aQuantive for $6 billion on May 18, 2007.

“The relationship with IAC is a fairly comprehensive partnership that is, in essence, designed to take advantage of the Atlas Ad Manager technology for IAC publisher sites and manage the full spectrum of their business online in terms of inventory forecasting, analytics, targeting, etc.,” stated Scott Ferris, a senior VP and GM of the publisher and emerging media divisions for aQuantive. “It’s designed to encompass all of the IAC publisher and media property over time^[1].”

Google’s DoubleClick acquisition is still being investigated for potential monopolistic practices. The acquisition is not quite finalized yet.

References:
[1] ClickZ: IAC Leaves DoubleClick for Atlas

“The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry,” stated Steve Ballmer, CEO of Microsoft.

Microsoft has announced today that the company will be acquiring aQuantive, Inc. for $66.50 per share through an all-cash transaction. The transaction is worth $6 billion. This amount clearly eclipses the amount that Google spent for DoubleClick, Yahoo! made for RightMedia, and WPP Group made for 24/7 Real Media. Combined.

“Today’s announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all,” continued Ballmer.

Publishers, ad agencies, and advertisers will benefit from this transaction because the combination of technologies will increase advertisement inventory. This transaction will also take Microsoft’s advertising platform to an upper level. Microsoft will be leveraging advertising of its assets such as Windows Live, MSN, XBox Live, Office Live, and also through partnerships with Facebook & Activision.

Through the acquisition, Microsoft will also gain control of Atlas, DRIVEpm, and Avenue A | Razorfish. aQuantive, founded in 1997 trades under NASDAQ: AQNT.
[Information Source: Official Microsoft press release]

Update: aQuantive Stock Upped 78% today. Congrats to their shareholders.