Publicis Groupe SA's desire to acquire digital marketing agency Razorfish from Microsoft Corp. will bolster the French advertising holding company's mobile brain trust.

The transaction is valued at approximately $530 million, expected to be provided in a combination of cash and Publicis Groupe treasury shares. In addition, the parties announced they have signed a strategic alliance agreement that will become effective at the closing of the transaction, effectively making Microsoft a client of its former subsidiary.

"We see Razorfish accelerating our mission of expanding our global reach and client offerings, operating as part of VivaKi and Publicis Groupe," said Jeff Lanctot, Seattle-based chief strategy officer at Razorfish. "Our being part of Publicis Groupe accelerates Publicis Groupe's own strategy of broadening the breadth of its digital offerings.

"Razorfish adds to Publicis Groupe expertise in creating consumer experiences across the digital world, creative skills and social influence marketing leadership," he said. "During the process, we've been very pleased to learn that the two companies are very closely aligned, both strategically and philosophically."

Publicis Groupe claims to be the world's fourth largest communications group and the second largest media agency, with a focus on shopper marketing, CRM and direct marketing, event and sports marketing, as well as digital and healthcare communications.

With activities spanning 104 countries on five continents, Publicis Groupe offers local and international clients a range of advertising services through three global advertising networks, Leo Burnett, Publicis and Saatchi & Saatchi, and two multi-hub networks, Fallon and 49-percent-owned Bartle Bogle Hegarty.

Media consultancy and buying is offered through two worldwide networks, Starcom MediaVest Group and ZenithOptimedia; and interactive and digital marketing led by Digitas.

Publicis Groupe recently launched VivaKi to leverage the combined scale of the autonomous operations of Digitas, Starcom MediaVest Group, Denuo and ZenithOptimedia to develop new services, tools and next-generation digital platforms.

Razorfish is an interactive marketing and technology company advising marketers on social influence marketing, its approach for employing social media and social influencers to achieve the marketing and business needs of an organization.

The agency specializes in strategic counsel, digital advertising and content creation, media buying, analytics, technology and user experience.

Razorfish clients include Best Buy, Ford, Carnival Cruise Lines, MillerCoors, Levi's, McDonald's and Starwood Hotels and Resorts.

The company's clients that are currently using the mobile channel include Audi, JCPenney, Polo Ralph Lauren, Starwood Hotels, Unilever's Axe, Lasik Plus, Brooks Brothers and Best Buy.

Razorfish currently works with a handful of mobile partners both in the U.S. and abroad, including CONvisual, IronOne Technologies and Hands On Mobile for application and WAP-site development.

For its mobile display media needs, Razorfish works with AdMob, Millennial Media, 4Info, AOL's Platform-A and Nokia.

Forrester rated Razorfish's emerging media capabilities highest among interactive agencies in its Wave report released last week.

"Overall, the deal with Publicis Groupe is good for both Razorfish's existing mobile clients and for the mobile industry as a whole," Mr. Lanctot said. "The Publicis Groupe/VivaKi family of brands already enjoys strong expertise in mobile from PhoneValley, Denuo and Digitas.

"By combining Razorfish's industry-leading vision, strategy and expertise in this area with Publicis Groupe's worldwide network, expanded scale and robust resources, we will be in an even better position to deliver powerful, engaging mobile programs for our clients."

Razorfish joined Microsoft as part of the acquisition of aQuantive in 2007.

Razorfish will continue to operate under its brand name and be organizationally part of VivaKi, the new Publicis Groupe entity created in June 2008 to leverage the combined scale of the autonomous operations of Digitas, Starcom MediaVest Group, Denuo and ZenithOptimedia.

Publicis Groupe sought out this acquisition to be able to offer a wider pool of resources, talent and expertise that will help its clients market their products or services in a digital, mobile world.

After Publicis Groupe completes this transaction, approximately one-quarter of its annual revenues will come from digital communications, according to the company, and it believes that it will have more capacity to grow with new clients.

Publicis Groupe also says that the deal builds upon the strategic relationship with Microsoft announced in June and that the two companies are exploring ways to work together to help deliver online and mobile services to brand marketers.

The agreement lets agencies representing Publicis Groupe media clients to buy display and search advertising from Microsoft over the five-year term of the agreement on favorable terms, in exchange for certain minimum guaranteed aggregate purchase levels.

The agreement also provides that Razorfish will continue to be a preferred provider to Microsoft for digital strategy, creative and experiential marketing services.

The deal also contains a commitment by Microsoft to spend a minimum amount for those services each year during the term of the agreement.

Razorfish's management team, led by CEO Bob Lord, will remain unchanged.

The total consideration is expected to be paid in a combination of cash and delivery of 6.5 million Publicis Groupe treasury shares.

The cash component of the purchase price will be determined based on the value attributed to the shares calculated by the average closing price of Publicis Groupe stock during the 20-trading-day period ending on the eighth business day prior to the closing date of the transaction.

The transaction is expected to close during the fourth quarter of 2009, and is subject to customary closing conditions, including clearance under the United States Hart-Scott-Rodino Antitrust Improvements Act.

"This deal with Publicis Groupe allows Microsoft to focus more of our energies on building out our search business with Bing and our proposed partnership with Yahoo," said Tom Phillips, Seattle-based senior communications director for Microsoft Advertiser and Publisher Solutions. "We'll also continue to build out our advertising platform, basically to build out tools, technology and services and aggregate media inventory on our own properties and also the properties of the Web publishers we partner with.

"Mobile is a part of our platform, and we'll continue building out our mobile advertising capabilities," he said. "When Razorfish was a part of the Microsoft organization, because they have to buy media from a bunch of different companies in addition to Microsoft, it operated as an autonomous objective entity.

"It operated as if it were a separate company and now that becomes official."

Razorfish is now a digital agency of record for Microsoft, meaning it is a preferred provider.

"Microsoft is actually a client of Razorfish," Mr. Phillips said. "Microsoft will continue to do business with Publicis -- they will buy Microsoft advertising inventory on MSN, Windows Live and other assets through our media network.

"That doesn't preclude us from having strong relationships with the other big holding companies [Omnicom, Interpublic and WPP] too -- it's not exclusive," he said.

Analyst's take
One analyst was impressed with Razorfish's understanding of mobile, but wanted to see more concrete examples of mobile campaigns spearheaded by the agency.

"It's hard to know immediately what effects this ownership change will have on the mobile advertising industry," said Jeff Orr, Bend, OR-based senior analyst of mobile devices at ABI Research. "Looking at the history of Razorfish as part of Microsoft, its ownership ?got it' that mobile is different than online -- a Web site designed for a PC browser is not the same experience as mobile.

"It's hard to say what advertising impact they've really had in the mobile space, as many of their case studies talk about application development, but there are very few examples of success in mobile as far as brand campaigns," he said.

"Razorfish clearly understands what mobile is and how mobile marketing and advertising should be different than the traditional digital experience, but there are very few examples of what they've done to help clients overcome those types of challenges."

Mr. Orr expects Razorfish to transfer its knowledge and awareness of the mobile ecosystem across the different parts of the Publicis Groupe's business and help its various arms engage better with mobile.

"This improves the Publicis brain trust, but in terms of specific revenue opportunities or the ability to overcome the challenges with permission marketing that are associated with the mobile platform, how they're going to deal with that is not understood.

"Is there a budget for mobile marketing under Razorfish that will allow them to expand now that they're a part of Publicis?" he said. "The presentations they put together look great, but taking that and transferring it into deliverables that help clients deliver campaign results via mobile -- I've been hard-pressed to find any results.

"It's a good move, and I'm glad to see the change occurring, seeing this talent moving from one entity to another, because the market is quite difficult right now."