French ad giant buys Microsoft's Razorfish

Publicis pays $530 million for digital creative shop. Microsoft wins strategic alliance.

Ad giant Publicis Groupe announced yesterday that it’s buying digital ad agency Razorfish for $530 million in cash and stock. The price was 1.4 times Razorfish’s 2008 sales of $380 million. In exchange for Razorfish, Publicis will give Microsoft 6.5 million in shares, making Microsoft a 3% owner of the advertising company.

As demand for print and TV ads die off, the move is calculated to expand Publicis’ online advertising power.  “Once this acquisition is complete, about a quarter of our revenue will come from digital communication and our ability to grow and conquer will be reinforced,” Publicis Chief Executive Officer Maurice Levy said in a rather Nietzschean statement.

Microsoft acquired the company as part of its $6 billion purchase of aQuantive more than two years ago. It’s been trying to unload the people-heavy shop all summer Razorfish has 2000 employees worldwide, and doesn't fit well with Microsoft's online ad focus on search and display.

Razorfish is one of the most successful digital ad agencies to grow out of the West Coast (it’s based in Redmond).  It was responsible for the Bing ads, the first mass-marketing campaign to successfully mock Google’s core product and the first time the world laughed with Microsoft in over 25 years (Seinfeld came close). That alone proves the agency is worth at least a half billion. Its other clients include Best Buy, Ford Motor, McDonald’s, MillerCoors, Levi Strauss & Company and Starwood Hotels and Resorts.

Razorfish is one of the few agencies that have successfully built a shop made for a "Web 2.0" world. It's conducted several successful user-generated campaigns for established brands, including CNN.com's iReport, and TED's Pangea Day film festival.

The creative shop now falms under auspices of Madison Ave digital hotshot David Kenny. Kenny was at the healm of Digitas when it was acquired by Publicis in 2006, so he has experience merging a digital creative shop into a big brother Ad giant. He now heads up Vivaki, Publicis’ digital hub where Razorfish will be housed.

An interesting part of the deal is the new alliance between Micorosft and Publicis. The agreement, which is to run for five years, requires Publicis to buy a minimum amount of display and search advertising from Microsoft properties like Bing and msn.com. The amount guaranteed is worth somewhere in the hundreds of millions of dollars, according to Stuart Elliot. The agreement also calls for Microsoft to spend a minumum amount with Razorfish.

That means Microsoft’s reputation will remain in the only set of hands that has been able to make polish it in recent years, while Redmond gains the power of the biggest force in digital advertising. In addition to owning agencies Saatchi & Saatchi (have you seen “Beware the Doghouse?”), Leo Burnett, the MediaVest Group and ZenithOptimedia, Publicis has the strongest digital engine of the agency parents in its Vivaki arm. It’s also allied with Droga5, possibly the most savvy viral campaign shop, responsible for marketing coups like Marc Echo’s “tagging” of Airforce One. It’ll be interesting to see how Microsoft’s image evolves in the next five years.

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image credit: Maurice Levy thanks to nrkbeta