Did Microsoft Panic With This aQuantive Buy?

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Includes: AQNT, MSFT
by: Larry Dignan

Microsoft, loser of the DoubleClick sweepstakes and rumored to buy almost every online advertising company on the planet, is now on the bandwagon. The company acquired aQuantive for $6 billion.

Microsoft will pay all cash for aQuantive. The company paid a whopping $66.50 a share for the company. Aquantive closed at $35.87 on Thursday. The acquisition is the largest in Microsoft’s history.

In a statement the software giant said:

This deal expands upon the Company’s previously outlined vision to provide the advertising industry with a world class, Internet-wide advertising platform, as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments.

It better at that premium.

The acquisition makes Microsoft a bit of an advertising agency that can design ads and deliver them via its Adcenter platform. Seeing the writing on the wall WPP bought 24/7 Real Media on Thursday. Microsoft was allegedly interested in 24/7 Real Media, but found aQuantive more attractive.

CEO Steve Ballmer said aQuantive represents “the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet.”

With aQuantive, Microsoft can manage campaigns, maximize inventory and design ads. AQuantive owns Avenue A/Razorfish, which is one of the largest design firms. In other words, Microsoft will be an advertising firm.

The online advertising industry has consolidated in short order. Google bought DoubleClick, Yahoo bought Right Media, WPP took out 24/7 and now Microsoft took aQuantive off the board.

On the surface, the integration of the two companies should be relatively easy. AQuantive, with 2,600 employees, is based in Seattle. And the capabilities and systems aQuantive brings to the table don’t overlap with Microsoft’s current structure that much. Microsoft plans to fold aQuantive into its online services unit.

Aquantive brings three primary systems to Microsoft: Atlas provides tools for publishers and advertisers to better monetize ad inventory; Drivepm matches campaigns and inventory; and Avenue A/Razorfish, which designs ads.

A few other observations:

* Did Microsoft panic with the aQuantive buy? If $3.1 billion was too pricey for DoubleClick how can it possibly justify a $6 billion takeover of aQuantive? I don’t care what synergies you cook up - the valuation is way rich.

* Watch the regulatory horse trading now. Kevin Johnson, president of Microsoft’s platform and services division, didn’t back down on the company’s argument that the Google and DoubleClick deal is anticompetitive on the merger conference call. Johnson argued that aQuantive is complementary to Microsoft while Google and DoubleClick overlap. In that argument, Microsoft will argue that Google and DoubleClick stifles competition while Microsoft’s aQuantive buy stimulates it.

I don’t get the argument to be honest. Online advertising is being consolidated among three giants–Google, Yahoo and Microsoft. My bet: Microsoft eventually shuts up about Google so it doesn’t raise concerns about the aQuantive deal.