Microsoft Pays $6 billion for aQuantive: Massive Ad Network Consolidation Is Occuring

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Breaking: Microsoft is acquiring advertising network aQuantive, the parent company to Avenue A | Razorfish, Atlas and DRIVEpm, for roughly $6 billion in an all-cash transaction, the company said this morning.

aQuantive is a public company (AQNT) and had a market cap of just $2.8 billion as of yesterday. The acquisition price of $6 billion is a roughly 2x premium on yesterday’s closing price, which is a reflection of the fact that this were competing bidders (see notes below). The acquisition comes after recent big acquisitions by Google and Yahoo in this space. Google bought Doubleclick for $3.1 billion in April. Later that same month, Yahoo acquired competitor RightMedia for $680 million. Just yesterday, WPP Group acquired yet another company in this space, 24/7 Real Media, for $649 million.

2006 revenues for aQuantive were $442 million. Net income as about $54 million.

aQuantive’s operating companies include both tools and ad agencies. The company is located in Seattle.

Microsoft is held a media call this morning to discuss the transaction. My notes are below. At about 7 am PST a recording of the call will be available at 1-800-774-9248.

Notes From Media Call:

(see CenterNetworks as well, Allen Stern has taken very complete notes)

Deal brings lots of new relationships with publishers and advertisers

Microsoft is now able to sell display ads on any website

Good tools for rich media ads, including IPTV

aQuantive was founded in 1997.

Microsoft says they are showing they are willing to aggressively grow strategically. Ad market is predicted to grow dramatically over the next few years. Lots of synergies between companies. Will be able to better monetize microsoft inventory, and will now be able to sell display ads on third party sites. Financial implications to MS: deal will close in FY 2008. They do not think it will have a significant impact on MS operating income.

MS expects an antitrust review in the U.S. and maybe in other countries. Probably not EU, but perhaps in Germany.

MS talking about privacy: says aQuantive has high degree of respect for privacy and fits well with Microsoft’s privacy policies.

Bear Stearns question: does this affect MS’s opinion on Google/doubleclick transaction. MS: no, not at all. Says this will promote competition and Google/doubleclick will hurt competition. Microsoft is in none of the businesses that aQuantive is in, whereas Google was already in direct competition with doubleclick and will give Google 80% market share in those markets.

question on how difficult integration will be with MS’s Adcenter platform? MS says online ad market is $40 billion annually and growing 20% per year. Says MS is committed to getting their share of the market, and this deal gives them a more complete end to end solution (paid search, display ads, CPA). MS says the deal will make their time to market much quicker. They are looking to consolidate their inventory from MS sites to create more scale for ad network. Talking about MS’s new software + services model, phones, games, IPTV, etc. and that advertising will drive these businesses.

MS has a long relationship with aQuantive, has been a customer for many years.

question on the size of the premium v. yesterdays closing price for aQuantive. MS says if they can drive growth through acquisition better than through internal growth they will do it. “we have the economic fire power to do more if we wish to”. MS says this was a competitive bidding situation, and “we are delighted to have won”

MS is saying that there is very little overlap between the two companies, the products are highly complementary.

this is largest MS acquisition to date, but this is only 2% of MS market cap, and they have $35 b in cash on had.

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