Microsoft In Talks To Sell Avenue A/Razorfish To WPP Group

Posted Aug 25, 2008

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