Publicis buys Microsoft's Razorfish for USD530m

Publicis is buying Microsoft's digital marketing arm, Razorfish, for roughly USD530m as part of a five-year search ad agreement. Publicis claims the deal will mean that its digital operations will make up 25% of its annual revenues, hitting an internal target a year ahead of schedule.

Under the cash and stock agreement Razorfish will be folded into Publicis' digital arm, VivaKi. The deal, which includes the payment of 6.5m Publicis Groupe treasury shares to Microsoft, will leave Razorfish's management team unchanged, with CEO Bob Lord continuing to run the business.

As part of the five-year deal, Publicis has agreed to purchase a set minimum amount of display and search ads each year from Microsoft's search portal Bing, in exchange for receiving "favourable terms". In turn, Microsoft will continue paying a set amount for using Razorfish's services over the five years, saying that: "Razorfish will continue to be a preferred provider to Microsoft for digital strategy, creative and experiential marketing services."

The deal follows months of speculation over Microsoft's plans to sell Razorfish, with rival marketing giants WPP and Omnicom both thought to be in the running for the unit. Microsoft acquired Razorfish in 2007 as part of its USD6bn deal to acquire aQuantive, but commentators say a conflict of interest between Razorfish and Microsoft Advertising, as well as the global ad slump, is behind the sale.

The Razorfish deal also signals an apparent effort by Microsoft to slim down its ad operations, following its recent Yahoo! search pact. The Yahoo! deal will see Microsoft run technical search operations for both companies, while handing over premium search-ad sales to Yahoo!. Reports speculate that Microsoft may be planning to sell other non-core assets, such as its in-game ad division, Massive.

Maurice Levy, Publicis Groupe's CEO, claims the Razorfish acquisition is important in establishing Publicis as a leading player in digital communications. "The combination of Razorfish's assets with the complementary expertise we already possess will be highly valuable to our clients and shareholders," Levy says.

Razorfish is an online ad agency responsible for buying ad space and serving major clients including Best Buy, Ford and McDonald's. News of the deal pushed up Publicis' share price up by more than 5% in mid-day trading. The deal is due to close in Q4, subject to antitrust approval.