Breaking News: Microsoft to Acquire aQuantive, Inc.

CALL NOTES AT THE BOTTOM OF THIS POST

It sure looks like spring acquisition fever is in full bloom. Microsoft has just announced that they are acquiring aQuantive for $6 billion. That’s double the price Google paid for DoubleClick earlier this month. The jockeying for position continues between the major players as the stock market continues to create more and more free cash. The battle lines are being drawn between Microsoft and Google. The question is whether Yahoo will be left on the sidelines.

“The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry,” said Steve Ballmer, chief executive officer of Microsoft. “Today’s announcement represents the next step in the evolution of our ad network from our initial investment in MSN(R), to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all.”

From the release: Combining aQuantive’s technologies and services with Microsoft’s portfolio will provide value for the industry’s key constituencies as follows:

• Advertisers and ad agencies will benefit from a world-class media planning, buying and campaign management solution to drive maximum ROI and optimize their reach to audiences across the increasingly fragmented, interactive media landscape.
• Media owners/publishers will gain access to best-in-class inventory optimization and monetization solutions across a full suite of rich media, video and targeting capabilities.
• The broader advertising ecosystem will benefit from the leading interactive advertising agency, Avenue A | Razorfish, continuing to serve its impressive client roster, while also embedding the voice of the marketer into Microsoft’s next generation advertising solutions and services.

aQuantive had a great quarter, with profits rising 87%, net income rose to $14.6 million while revenue was up to $142.6 million.

Call notes:

(Michael Arrington at TechCrunch also has an excellent call recap)

Kevin Johnson, Microsoft Platform President, starts with a note that Microsoft is moving towards being a major player in the advertising space. They are growing their advertising platform 30% year over year. Microsoft shows they are ready to show organic growth with every possible device around including pc, mobile, in-game, etc. This is the biggest acquisition in Microsoft’s history. The transaction is valued at $6 billion. The assets together will create deeper solutions to agencies, companies and publishers. These assets allow us to create the next-generation of advertising platforms.

Brian McAndrews, CEO aQuantive, we are delighted to pursue this deal with Microsoft. We have 3 primary brands: Atlas digital marketing suite, drivepm provides advertisers with links to publishers and Razorfish is one of the largest interactive agencies in the world. In addition we bring great people to the table. We have long-standing positive relationships with Microsoft.

Chris Liddell, CFO Microsoft, this is a positive and important acquisition, will allow us to add significant shareholder value over the long-term. We expect the deal to close in our next fiscal deal in 2008.

Brad Smith, SVP General Counsel Microsoft, there will be review of the deal inside and outside (Germany) of this deal. We think it is important that regulators look at these types of deals for their competitive implications. We will continue to protect the privacy and integrity of the data.

Open Questions:

Does this affect Microsoft’s opinion on the Google/DoubleClick transaction?
The Microsoft/aQuantive transaction will increase competition, the Google/DC transaction will decrease competion.

JPMorgan, how do you see aQuantive integrating with the adCenter platform?
Kevin: First of all, as we pointed out, the online advertising opportunity is significant. This deal takes our advertising platform to a new level. We can offer a more complete end-to-end solution.

Sanford Bernstein: This is a substantial premium for aQuantive, any further info?
Chris: We have done a large number of transactions over the past couple of years and we have walked away from a few transactions over the years. We believe aQuantive is the right company to buy and we think the premium makes sense. We will use the strength of our balance sheet to drive growth thru acquisition.

What incentives have you put in place to mitigate the risk of losing people in this deal?
Kevin: Brian and I have been working closely on this topic. We have deep relationships between the two companies. Brian will report directly into me, and the aQuantitive will continue to report to Brian until we look at bringing the right assets together between the two companies.

The technologies that aQuantive brings and those that Microsoft has are very complementary and there is significant value that can be unlocked by having the complete end-to-end solutions.

There has been some discussion about the multiple paid for the company and that it was a competitive scenario. The transaction is at 2% of the Microsoft market cap.

call ends. 800-774-9248, 402-220-0372 international if you want to listen to the call (wait one hour to get the playback)