Publicis to Acquire Razorfish

Publicis Groupe has reached a deal to buy Razorfish from Microsoft for approximately $530 million. Under terms of the agreement, Publicis will fund the purchase via a mix of cash and 6.5 million treasury shares. The sale will be 55 percent cash and the rest stock. The agreement also extends a cooperation pact Microsoft and Publicis signed this summer.

The deal brings to Publicis a second large digital agency to operate alongside Digitas, which Publicis bought in Dec. 2006 for $1.3 billion. Razorfish has about 2,000 employees worldwide. After the transaction, Publicis will have the most digital assets of any advertising holding company, with 25 percent of its revenue coming from digital operations, according to the Paris-based company.

“We got it at good terms,” said David Kenny, managing director of VivaKi, Publicis’ digital unit. “They bring much more technology. I think that’s important. Their clients think very highly of them in terms of being able to technologically deliver, and that’s stronger than anything we have, including Digitas.”

Razorfish reportedly also drew interest from WPP Group and Dentsu after Microsoft began shopping the agency.

Kenny said the deal would not commit Publicis to buying a predetermined level of online advertising from Microsoft, contrary to early reports. Instead, Publicis will get an unspecified discount on Microsoft ad rates if it hits certain levels. Kenny said the deal, while unusual for the online industry, mirrors those struck with TV broadcasters.

“We tried to apply some of the clout and scale advantages in this space that happen in the traditional space,” he said.

Publicis also has a partnership deal in place with Google. Under that alliance, Publicis committed its agencies to using Google’s Doubleclick ad-serving platform. Kenny said that agreement would remain in place, but Razorfish would continue to primarily use Microsoft’s Atlas technology. It will now be the biggest customer of both Google and Microsoft, Kenny said.

“To be their biggest customer means you get a real voice in what they develop and [in their] pricing,” he said. “We’ve got a chance to define how the market is developed and how it evolves.”

In turn, Microsoft has committed to using Razorfish as its lead digital agency for five years.

This ends the awkward marriage of Razorish and Microsoft, which acquired the digital agency when it bought aQuantive for $6 billion in June 2007. That deal was done by Microsoft for Atlas, the ad-serving technology. Microsoft has operated Razorfish as an independent unit, even to the point of letting its employees use Macintosh computers and excluding them from Microsoft benefits plans.

While Razorfish was able to avoid the conflicts inherent in a large online ad seller and tech provider owning an agency, it likely will find a more natural home with Publicis. It will continue to operate separately as a part of VivaKi.

The deal is expected to close in the fourth quarter. Publicis said Razorfish’s management team, led by CEO Bob Lord, would remain in place.

Lord said the time is right for the deal, as the shop tries to move from being a digital specialist to taking on a broader role with clients as a lead agency resource.

“We’ll be able to do it faster than we could on our own,” he said. “The clients are demanding it now.”

Nielsen Business Media