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Microsoft $6.2 billion writedown of 2007 acquisition aQuantive

by Mark Tyson on 3 July 2012, 11:07

Tags: Microsoft (NASDAQ:MSFT), Bing

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In 2007 Microsoft bought aQuantive, at the time its biggest ever purchase at $6.3 billion (over £4 billion). Now, just five years later Microsoft has written down the value of the acquisition by $6.2 billion. Doing the (easy) maths, this part of Microsoft’s business is now worth $0.1 billion according to the firm’s accountants.

The accounting adjustment, a non-cash charge, means that Microsoft will probably be posting a loss for Q2, which ended in June. Prior to this announcement Microsoft had been expected to post a $5.3 billion profit. Shareholders didn’t over-react to the news, the value of Microsoft shares was little changed in trading following the announcement; shares were $30.56 at closing, down from $30.59. A stock market analyst commented that “aQuantive didn't work out, but everyone already pretty much knew that.”

The writedown is taken by Microsoft’s Online Services Division, a part of the company that has a history of losing money. Also the Online Division likes to spend money on big acquisitions; there was very nearly a Yahoo! deal in 2008 but the bid fell through, last year in May Skype was bought for $8.5 billion.

Bloomberg obtained an email written to employees from Microsoft CEO Steve Ballmer which said soothingly “This is an accounting decision that the company made based on how the business is performing relative to the projections we had made during the past five years. We want to be very clear that we are strongly committed to a strong and financially successful online division.”

While aQuantive hasn’t met the expectations of the company in the accelerated growth it should have brought, Microsoft said in the latest results that there have been improvements in other areas for the Online Division. Bing has gained market share, MSN is the number one web portal in 29 countries and the company is enjoying higher revenue per search (RPS). The online operating losses were down to $1.45 billion in the nine months to 31st March, from $1.91 billion a year earlier. Also online sales grew 11 per cent to $2.13 billion in the same period.

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