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Microsoft Would Have To Pay $500 Million To Escape aQuantive Deal

If aQuantive exits the deal early, it will have to pay Microsoft $175 million.
If Microsoft pulls a Jennifer Willbanks -- the Georgia bride who made headlines after fleeing the altar and going missing in 2005 -- and backs out of its deal to acquire online advertising firm aQuantive, it will cost the company a cool half-billion dollars.

According to the merger agreement, filed Friday with the Securities and Exchange Commission, Microsoft must pay aQuantive $500 million if it terminates the nuptials without cause.

If aQuantive steals a page from Willbanks and exits the deal early, it will have to pay Microsoft $175 million.

The agreement does allow either Microsoft or aQuantive to ditch the merger if certain conditions are violated by the other. It also allows aQuantive to entertain acquisition proposals from other interested parties up until the deal is completed. AQuantive, however, is prohibited from actively soliciting rival takeover offers.

But short of someone falsifying documents or the appearance of a third-party bidder, both companies face big financial penalties if they try to back out.

Some analysts have suggested that Microsoft might have good reason to get cold feet. The $66.50 purchase price -- roughly $6 billion in total -- represents a whopping 85% premium over aQuantive's closing share price on Thursday. The deal was announced Friday.

The purchase price also represents a sizeable, 67-times-earnings multiple and a revenue multiple of 7.6, based on aQuantive's projected calendar year 2008 results.

In a report, analysts at Friedman Billing Ramsey said Microsoft was paying "a hefty price" for aQuantive.

They noted, however, that the company may have had to pay a high premium for the online advertising agency -- whose operating units include Avenue A/Razorfish -- or risking losing it to a rival. Microsoft "must do something to close the gap in online advertising between itself and Google and Yahoo," said the analysts.

In April, Google announced a $3.1 billion deal to buy online ad service provider DoubleClick, a company for which Microsoft was thought to be on the hunt.

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