What a Conflict of Interest Looks Like: Microsoft Has Publicis Over a Barrel in Ad Deal
Razorfish, the ad agency that Microsoft (MSFT) sold to Publicis (PUB), is struggling to meet a commitment to buy the amount of advertising it promised to put on Microsoft's sites, raising more doubts about the wisdom of Publicis' acquisition of the online ad agency. What Ad Age's report doesn't say is that Microsoft has Publicis over a barrel and will get its money -- or its ads -- no matter what.
If Razorfish's clients -- who include McDonald's (MCD), Levi Strauss & Co. and Coca-Cola (KO) -- see their ads showing up on Microsoft's sites they might want to ask some careful questions about whether those ads are good for them or Publicis, which is trapped by the terms of its deal with Microsoft.
From the get-go, everything about this deal was "strange," as a Citi analyst noted at the time. Here's how the deal worked:
- Publicis bought Razorfish for $530 million.
- Microsoft got a 3.3 percent stake in Publicis.
- Publicis' bid was not the highest for Razorfish, but Microsoft agreed to it because Publicis also promised to buy a minimum amount of advertising with Microsoft.
- In addition, Microsoft promised to use Razorfish as a "preferred provider" of digital advertising.
- About 75 percent of Razorfish employees' unvested stock options were cancelled.
- And there was some confusion as to whether Razorfish was profitable or not.
It's unlikely Publicis can avoid those penalties. Microsoft is now a major Publicis shareholder and it has promised to give Razorfish its own ad business. I'd love to hear Publicis explain this to its clients.
Related:
- Worst Office Party Ever? Razorfish Still Remembered for Infamous "Bellydancer" Blowout of 13 Years Ago
- Razorfish Hit by Mini Exodus of Staff
- Publicis Explains $20M Discrepancy in Razorfish Acquisition
- One Possible Reason Why Publicis Won't Honor Razorfish Stock Options
- Publicis Numbers on Razorfish Acquisition Don't Add Up