Microsoft

Microsoft is putting Internet ad agency Razorfish up for sale, according to a Financial Times report Sunday.

Microsoft, which acquired Razorfish in 2007 as part of its $6 billion takeover of Aquantive, has reportedly hired Morgan Stanley to find a potential buyer. The report identified French marketing company Publicis Groupe as a potential buyer.

Formerly known as Avenue A/Razorfish, the agency was credited with designing the logo for Microsoft's new search engine Bing, as well as creating the online ads for the ensuing publicity campaign. The Seattle-based agency has more than 2,000 employees and counts Dell, Disney, and Nike among its clients.

One analyst cited in the FT.com report estimated Razorfish could be worth $600 million to $700 million.

Representatives for Microsoft and Razorfish did not immediately reply to requests for comment.

The deal for Aquantive was Microsoft's largest ever and highlighted the importance of supporting more-advanced advertising products and technologies across areas including media planning, video on demand, and Internet Protocol television. The acquisition of Razorfish specifically was considered especially important as a way to give Microsoft a new presence in the ad services business and also help promote its rich media and video plug-in Silverlight.

This was originally published at ZDNet's Between the Lines.

Microsoft last week registered a limited liability company (LLC) in Delaware, stoking speculation that it is planning an acquisition or joint venture. If true, Microsoft may be planning a little bit more than a demo of its search engine and a big ad campaign to promote it.

In a research report, Jeffries analyst Katherine Egbert wrote:

The software giant registered an LLC Corp. in Delaware last week, a move often made a week or two in advance of acquisitions or joint ventures. The registration gave rise to widespread speculation that Microsoft would acquire Citrix. While that's possible, the timing of the registration and recent debt raise indicate to us that it might be more likely Microsoft uses the LLC to form a partnership to boost the amount of traffic flowing through its search engine. It makes sense to us that Microsoft would want to address both the passive and active search markets simultaneously.

For what it's worth, an acquisition of Citrix would make much more business sense, but Microsoft's LLC move is likely to lead to a deal with Yahoo.

Regarding Egbert's passive comment:

Passive searches are performed via search toolbars embedded on popular sites, such as Yahoo's homepage or MSN, while active searches come via a user typing the search provider's URL into a browser e.g. google.com.

Egbert adds that a search engine move--perhaps that long-awaited deal with Yaho--would make sense. After all, Microsoft is going to blow $80 million to $100 million on advertising its "Bing" search engine in an attempt to garner users. It wouldn't hurt to pump some traffic through Bing to get things rolling.

Update at 5:58 a.m. PDT: Ciao is based in Munich, Germany. Greenfield Online is based in Wilton, Conn.

Microsoft said Friday it has reached a deal to acquire Greenfield Online, the owner of consumer shopping sites, for about $486 million.

Greenfield's properties include Munich, Germany-based Ciao, one of the leading price-comparison and online-shopping sites in Europe. Ultimately, Microsoft said, Ciao's technology platform, online community, and merchant relationships will be integrated with Microsoft's Live Search.

Ciao is a European-based price-comparison and shopping site.

Ciao features consumer reviews and ratings. Microsoft said that, according to ComScore, Ciao has more than 26.5 million unique visitors per month across seven countries, who have generated more than 5 million product reviews.

The deal calls for Microsoft to commence a cash tender offer to purchase all of the outstanding shares of Greenfield for $17.50 per share, or roughly $486 million.

Wilton, Conn.-based Greenfield, which acquired Ciao in 2005, also owns an Internet survey business, which Microsoft plans to sell off. Microsoft said it has already secured an unnamed buyer for that unit.

Both transactions are expected to close during the fourth quarter.

Microsoft's offer for Greenfield trumps an earlier deal. In June, Greenfield said it was in takeover discussions with the Quadrangle Group and had secured an agreement to be acquired for $15.50 per share.

In a press release issued on Friday, Greenfield said that "immediately prior to entry into the merger agreement with Microsoft it had terminated its previously announced merger agreement with affiliates of Quadrangle Group LLC."

In connection with the termination of that deal, Greenfield said it is required to pay Quadrangle a $5 million fee.

Microsoft filed its quarterly report with the U.S. Securities and Exchange Commission on Thursday, and in addition to financial revelations about its recent acquisitions, the tech titan also gave a more formal glimpse at how it views and plans to deal with the growing threat posed by Google and Apple, as well as longtime nemesis open source. Microsoft CEO Steve Ballmer touched on many of these issues last week at the start of the company's financial analysts meeting.

In a section titled "Challenges to our business model may reduce our revenues and operating margins," Microsoft reiterated that its bottom line may suffer if it has to drop the prices of its products to compete with Linux.

Proponents of open-source software continue efforts to convince governments worldwide to mandate the use of open-source software in their purchase and deployment of software products. Although we believe our products provide customers with significant advantages in security, productivity, and total cost of ownership, the open-source software model continues to pose a significant challenge to our business model. To the extent open-source software gains increasing market acceptance, sales of our products may decline, we may have to reduce the prices we charge for our products, and revenue and operating margins may decline.

In the same section, Microsoft also pointed to the business model challenge posed by its main search rival which has far more scale. The report seems to express admiration for the business model and says the company is throwing "significant resources" at attempting to emulate it.

Another development is the software-as-a-service business model, under which companies provide applications, data, and related services over the Internet. Providers use primarily advertising or subscription-based revenue models. Recent advances in computing and communications technologies have made this model viable and enabled the rapid growth of some of our competitors. We are devoting significant resources toward developing our own competing software plus services strategies. It is uncertain whether these strategies will be successful.

Another section addresses the threat posed by Apple, while conceding that competing with the model may prove expensive.

An important element of our business model has been to create platform-based ecosystems on which many participants can build diverse solutions. A competing vertically-integrated model, in which a single firm controls both the software and hardware elements of a product, has been successful with certain consumer products such as personal computers, mobile phones and digital music players. We also offer vertically-integrated hardware and software products; however, efforts to compete with the vertically integrated model may increase our cost of sales and reduce operating margins.

Also in its report, Microsoft confirmed that it spent $500 million for its acquisition earlier this year of Sidekick maker Danger.

The company also made its larger $1.3 billion purchase of Norway's Fast Search and Transfer and closed its $5.9 billion Aquantive purchase. Other deals made during the year added another $1.1 billion, Microsoft said.

Other interesting Microsoft facts from the report:

Microsoft now occupies 2 million square feet of real estate that it owns and 8 million square feet of leased space.

It ended the year with $23.66 billion in cash and short-term investments, up slightly from the $23.41 billion it had as of June 30, 2007.

That's what I got from a quick read. Let me know if I missed anything.

A dissident shareholder is pushing Yahoo to accept a mixed board of directors drawn from company nominees and those presented by billionaire investor Carl Icahn, according to a report by Reuters.

Eric Jackson, manager of hedge fund Ironfire Capital and leader of shareholder group Yahoo Plan B, on Sunday said he would encourage his shareholder group Yahoo Plan B to elect five Yahoo directors and four Icahn nominees, Reuters reported. His group is made up of 150 Yahoo stockholders representing 3.2 million Yahoo shares.

"It's become clear over the last two weeks that many shareholders are reluctant to support the entire list of Icahn nominees," a planned Monday statement from Jackson reads, according to Reuters.

However, Reuters reported that a source familiar with the board's thinking said it would see no need to compromise with Icahn.

Icahn has proposed an alternative slate of board members as part of a bid to get Yahoo to agree to some sort of takeover by or deal with Microsoft. Icahn is backing a change of management, in part because he does not think that Microsoft can negotiate with the current board.

The move comes as both sides prepare for the August 1 proxy showdown over control of Yahoo's board.

Icahn's challenge took a hit on Friday, when Legg Mason Capital Management said it would back Yahoo's existing management at the company's shareholder meeting next month. The investment firm controls about 60.7 million shares of Yahoo, which represents about 4.4 percent of outstanding Yahoo stock.

For anyone who is beginning to tire of the three-months-and-counting Microhoo buyout drama, get those "thank you" cards prepped for six key people, should a deal get done this weekend, say sources familiar with the negotiations.

Some of these folks you'd expect to be heavily involved in wooing Yahoo's investor base to their respective side, and others less so. Drum roll please...

In the Yahoo camp, directors Roy Bostock, chairman, and Gary Wilson, along with Ron Olson, an outside legal adviser to Yahoo's independent directors, have been pushing hard to get past the bottleneck, sources said.

All three have been heavily involved in making repeated calls to more than half a dozen of Yahoo's largest shareholders, sources said.

Wilson, for one, has experience in dealing with proxy fights and not-so-friendly takeovers, given he currently sits on a dissident board for The Children's Investment Fund, which is embroiled in a proxy fight with railroad transportation company CSX. And years ago, he had a hand in other unsolicited buyouts from Chrysler to Northwest Airlines.

Meanwhile, Yahoo's Olson isn't just any old attorney issuing legal mumbo jumbo to a client; he has strong ties to the finance world, noted a source familiar with the haggling. Olson is a board member on Berkshire Hathaway and recently played a role in Mars' $23 billion buyout of Wrigley announced earlier this week, the source added. Berkshire, as reported in Forbes, contributed some financing for the deal and is taking a minority stake in Wrigley.

Yahoo's directors not only paid particularly keen attention to Olson's advice, they also gave their full attention to Ken Moelis, who heads up an investment bank that bears his name, said another source. Remember the old E.F. Hutton tagline: "When E.F. Hutton talks, people listen..."

And as Yahoo's tag-team reached out to its major shareholders, Microsoft was doing likewise, particularity CEO Steve Ballmer and investment bank adviser Alan Schwartz, chief executive of Bear Stearns, sources said.

"On Wednesday or Thursday, Microsoft was indicating (to investors) it was willing to contemplate a price of $32 or $33 a share," said a source familiar with the negotiations. "Still, some investors wanted $35 to $37, so it seemed possible, after a series of phone calls, that a deal at $34 or $35 could happen."

This source added there is a cautious sense of optimism a deal can happen this weekend, which would be greatly welcomed, given Microsoft's initial cash-stock bid valued at $31 a share at the time it was proposed has languished for the past three months. Based on Microsoft's closing price Friday, the deal is now worth $29.39.

In sizing up the potential catalyst for making headway on the deal and the why now factor, this source added: "The clock is ticking and shareholders are getting sick of waiting. My guess is Yahoo, internally, was facing some controversy in getting support for the AOL deal and was facing the possibility of Microsoft walking away. The surprising thing with this (buyout deal) is it's taken a long time and there's been mistakes on both sides."

Comments around pricing Friday, nonetheless, were resonating with investors, with Yahoo asking them to convey that sentiment to Microsoft, sources said. And, on the flip side, as the software giant made headway with Yahoo investors, it too was making a similar request to express that sentiment to Yahoo.

"Investors play both sides against the middle," said one proxy solicitor, noting it drives buyers to cough up more money than they initially planned and serves as a means to bring starry-eyed target companies down to reality.

We'll see what's in the stars this weekend...