SEATTLE/NEW YORK (Reuters) - Microsoft Corp. (MSFT.O) said on Friday it will buy aQuantive Inc. AQNT.O for $6 billion, paying an 85 percent premium to snap up one of the last large independent companies in a consolidating Web advertising market.
In announcing its biggest acquisition ever, Microsoft has made its most aggressive move to date in trying to narrow the gap with Google Inc. (GOOG.O) in the online advertising market.
Microsoft, the world’s largest software maker, said it would pay aQuantive shareholders $66.50 a share, a hefty premium to the previous day’s closing share price of $35.87.
Shares of aQuantive shot up to $63.76 in midday Nasdaq trade while Microsoft fell 0.84 percent to $30.72.
The all-cash deal tops a $10 billion consolidation spree across the online advertising market, sparked when Google agreed to buy DoubleClick Inc. for $3.1 billion last month.
“There had to have been some desperation for Microsoft to pay the price that it did,” said Morningstar analyst Toan Tran, adding that Microsoft’s sense of urgency probably heightened after it lost out on DoubleClick.
“Sometimes, I am worried that Microsoft has Google tunnel vision. It’s so worried what Google is doing that it becomes way too reactionary.”
Yahoo Inc. YHOO.O followed the Google deal by snatching up the 80 percent of Right Media it did not already own for $680 million. On Thursday, WPP Group Plc (WPP.L) said it would acquire 24/7 Real Media Inc. TFSM.O for $649 million.
Microsoft of Redmond, Washington said it would acquire aQuantive, based in nearby Seattle, to expand its push into Internet advertising through aQuantive’s tools for serving up online ads and tracking their impact.
“This deal takes our advertising business to a new level, and we are committed to earn a bigger slice of that $40 billion pie that’s growing,” Kevin Johnson, president of Microsoft’s platforms and services division, said on a conference call,
Microsoft expects the deal to close in its next fiscal year starting in July. It would add revenue and operating expense in fiscal 2008, but will not change the outlook for operating income or earnings per share next year, Microsoft said.
Ahead of the wave, French advertising giant Publicis (PUBP.PA) agreed to buy online ad agency Digitas in December for $1.3 billion.
Shares of ValueClick Inc.VCLK.O, the last sizable independent player in the online ad market, rose nearly 9 percent to $30.25 as investors speculated it could be bought.
Earlier this month, several newspapers reported that Microsoft was considering a deal worth an estimated $40 billion to $50 billion to acquire Yahoo. A source close to the situation subsequently said that any talks had cooled.
The aQuantive acquisition reduces the chances of a megadeal with Yahoo, the largest online media company, according to Stifel Nicolaus analyst Scott Devitt. “Microsoft may be more interested in piecemealing together the highest-quality franchises that replicate what Yahoo already has,” he said.
A possible deal for Yahoo was seen largely as a way to join forces to slow the growth of Google, which continues to gain market share. Google’s revenue grew three times faster than both companies.
Brad Smith, Microsoft’s general counsel, said it still wants antitrust regulators to scrutinize Google’s DoubleClick acquisition. Microsoft’s deal, on the other hand, is a combination of complementary assets and therefore should not raise antitrust concerns, Smith said.
Microsoft beat other competitors for aQuantive, saying there are only a small number of companies with enough advertising assets to help it gain scale in a market that the company sees growing at about 20 percent a year until 2010.
AQuantive, a company founded in 1997, helps advertisers target online ads through its Atlas technology unit and offers Web-site development services through its design agency Avenue A/Razorfish.
It also operates an online ad network that connects buyers and sellers and provides behavioral targeting for advertisers. Microsoft said the deal would allow it to strengthen ties with advertisers, ad agencies and Web site publishers.
The acquisition is the latest in a series of smaller deals Microsoft has been making to extend its capabilities in placing ads on everything from video games to mobile phones to its Internet Protocol television platform.
Last year, Microsoft bought Massive Inc., which places ads in video games, and earlier this month, it acquired ScreenTonic, a European mobile phone advertising company.
Additional reporting by Ritsuko Ando and Michele Gershberg