Publicis Numbers on Razorfish Acquisition Don't Add Up

Last Updated Sep 30, 2009 11:55 AM EDT

Some interesting discrepancies have arisen regarding the revenue and profitability of Razorfish, the interactive ad agency acquired by Publicis from Microsoft for $530 million.

In a presentation to investors, Publicis boss Maurice Levy told analysts that Razorfish's "FY June 30, 2009" revenue was $380 million (see slide 15). But in a Sept. 22 presentation by Microsoft, the company reveals that Razorfish's FY09 revenue was only $360 million (see slide 7).

As this PaidContent story points out:

Microsoft had previously disclosed that Razorfish's revenue was $380 million in 2008.
That seems to suggest that Levy was using the 2008 revenue figure, not the 2009 figure, to describe Razorfish's revenue, even though it was labelled "2009."

Levy also indicated on a conference call with analysts Aug. 11 that he believed Razorfish was profitable. Publicis' slideshow doesn't mention profits, but Citi analyst Thomas Singlehurst asked Levy to describe Razorfish's "profitability" and "EBIT margin." Levy replied:

Okay. I will give a lot of your answers ... On revenue growth. This is very difficult, because it is a carveout. And the only thing we know from the numbers which have been given to us is that they have grown in 2008, and were relatively stable in 2009.
On profitability, your assessment is right. It is roughly like Digitas. Again, we need to have access to all the numbers. We have to redo all the speculation, but we are in the same bracket.
Digitas was acquired by Publicis in 2006 and was profitable and growing. (Here are its its final 10-K and 10-Q forms with the SEC.) Its FY2005 revenues were $565 million and its net income was $41 million. Its final quarter of revenues in 2006 were $187 million and rising, with a net income of $6 million. Bottom line: Digitas was growing and profitable.

That was not the case at Razorfish, according to MS's slideshow. Revenue was in decline and it was not profitable. In fact, if you look at the quarterly breakouts starting on page 8, you can see that the situation at Razorfish was getting worse through FY 2009, not better.

Stuart Smith of MarketingWeek smelled something "fishy" too, in an item on a Citi note about the acquisition:

Microsoft has just released more detailed figures on Razorfish financials and analysts at Citi have been quick to point out that they do not tally with the sunny, upbeat, picture portrayed by Publicis at the time of the acquisition in August. Specifically, revenue has been declining throughout the year, where Publicis said it had improved year on year; and the agency is set to make a loss of $50m, where Publicis claimed it would make a 6-8% margin. Citi cites potentially extenuating circumstances for the discrepancy, the more important being incentives for senior Razorfish executives which Publicis may have failed to count in. "While this doesn't derail our positive assessment of the deal, it is strange," concludes the Citi circular. Strange indeed. Particularly, one assumes, for Publicis shareholders.
Publicis did not immediately respond to an email from BNET requesting comment. Quel mystère!