Microsoft is spending $6bn (£3bn) on its biggest acquisition in a desperate attempt to keep up with Google in the market for online advertising.
The internet ad broker aQuantive agreed to be taken over yesterday, after Microsoft offered close to double the company's stock market value.
Analysts expressed astonishment at the 85 per cent premium, and warned that it exposes how Microsoft has been forced to play an expensive game of catch-up with Google.
Less than a month ago, Microsoft ducked out of the auction for DoubleClick, the market-leading online ad broker, which was bought for $3.1bn by Google, saying the price had become unrealistic. Depending on which measure of earnings used, it is buying aQuantive at a valuation similar to, or even higher than, the price Google paid for DoubleClick.
Explaining the acquisition yesterday, Microsoft's chief financial officer, Chris Liddell, said: "We believe it's exactly the right company to buy, and hence we're willing to pay." The 10-year-old aQuantive is a bigger company than DoubleClick, since it also owns an advertising agency.
Businesses are spending larger and larger proportions of their ad budgets online, reflecting how potential customers are spending more time surfing the internet and less time with traditional media such as television and radio.
"We are committed to earn a bigger slice of that $40bn pie that's growing," said Kevin Johnson, the president of Microsoft's platforms and services unit.
AQuantive's technologies place adverts on websites and help advertisers improve the effectiveness of their internet marketing campaigns. Like Google and Yahoo!, Microsoft's online business, MSN, has expanded from offering advertising space on its sites to brokering adverts for other web publishers, but it is trailing in third place in this business. Its dramatic move yesterday capped a month of frenetic deal-doing in the internet advertising space.
Yahoo! reacted to the Google-DoubleClick deal by snatching up the 80 per cent of rival Right Media it did not own, paying $680m to do so. And this week, the world's second-largest group of advertising agencies, London-based WPP, said it would acquire 24/7 Real Media for $649m.
Shares in aQuantive climbed 78 per cent to $63.72 in midday trading on Nasdaq, close to the $66.50-per-share value of the Microsoft offer.
"There had to have been some desperation for Microsoft to pay the price that it did," said Toan Tran, an analyst at Morningstar. "Sometimes, I am worried that Microsoft has Google tunnel vision. It is so worried what Google is doing that it becomes way too reactionary."
Observers said the swoop on aQuantive made it less likely that Microsoft would seal a merger deal with Yahoo!. The on-again, off-again talks about a combination were given new impetus after Google's acquisition of DoubleClick, since Microsoft and Yahoo! feared falling further behind their rival in the online ad market. Yahoo! shares leapt 18 per cent on one day earlier this month when news leaked of the negotiations with Microsoft.Reuse content