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Online Ad Pockets Grow in Microsoft's $6B Buy

UPDATED: Microsoft  today agreed to acquire online advertising company aQuantive  for $6 billion in cash, a move that will help the software giant carve out some serious territory in the online advertising battleground.

It's the company's biggest acquisition bid ever. Microsoft offered $66.50 per share for the company for an 85 percent premium over aQuantive's Thursday closing price of $35.87. The offer highlights Microsoft's willingness to open its wallet further in order to catch Google , Yahoo and AOL in the ultra-competitive market for posting ads on Web sites.

Kevin Johnson, president of Microsoft's platforms and services division, said the deal takes the company's advertising platform and focus to a new level.

"Microsoft's advertising assets and aQuantive's complementary expertise in advertising tools, sales, support and syndication are assets that together will deliver safer solutions and increased value to agencies, advertisers and publishers," Johnson said during a conference call.

aQuantive has seen significant growth in the decade since its inception, evolving to include three main brands: Atlas, which makes the Media Console advertising platform; DRIVEpm, which provides ad services that match advertiser campaigns with publisher inventory; and Avenue A | Razorfish, which, as one of the largest online ad agencies in the world, provides advertisers digital marketing consultation along with media planning and buying.

Microsoft said it will use the aQuantive assets to create next-generation advertising systems, including cross media planning, video-on-demand and IPTV.

Microsoft expects to close the deal in the first half of its fiscal year 2008. aQuantive, a long-time customer and supplier of Microsoft, will continue to operate from its Seattle headquarters as part of Microsoft's Online Services Business.

Should the deal go through without a hitch, Microsoft will have a powerful weapon to wield in conjunction with its AdCenter platform, which Johnson said serves 500 million users a month.

Despite buying smaller online ad providers Massive, MotionBridge and ScreenTonic, Microsoft has been criticized for not putting its best foot forward in the market for landing ads on precious Internet real estate. All the while, Google, Yahoo and AOL increased their share of ad revenue, thanks in part to acquisitions.

Google helped trigger the rush for similar blockbuster deals by moving on online ad giant DoubleClick for $3.1 billion; Yahoo acquired the rest of Right Media for $680 million; and AOL earlier this week moved on mobile ad provider Third Screen Media for an undisclosed sum. WPP bid $649 million for 24/7 Media just yesterday.

But those deals pale in comparison to the $6 billion Microsoft is parting with to get aQuantive. With the company, Microsoft will assume a leadership role in what Microsoft CFO Chris Liddell said is a $40 billion online ad market expected to grow 20 percent each year through 2010.

Still, Microsoft officials insisted acquiring aQuantive for its three big brands and 2,600 employees is kosher because it's complementary.

Microsoft Senior Vice President and General Counsel Brad Smith, who has publicly complained that a Google-DoubleClick merger would reduce competition by giving Google 80 percent of the market for serving ads to third-party Web publishers, addressed the competitive ramifications on the call.

"We think it's very important that enforcement agencies fully study the competitive implications of acquisitions in this sector," Smith said. "We're looking forward to providing information to regulators regarding competition in the online advertising business, including the competitive aspects of this deal."

Complementary deals, he added, don't raise antitrust concerns.

Microsoft's positioning around the aQuantive deal rings with a note of irony. As recently as two weeks ago, Microsoft and Yahoo were considering a merger, according to several published reports.