off the Press - News & Commentary
04/19/05 by AP Technology News
Macromedia gobbled up by Adobe for $3.4Billion in Stock -
JOSE, Calif. - By acquiring rival software maker
Macromedia Inc. in a deal originally valued at $3.4 billion, Adobe
Systems Inc. is positioning itself to do battle with Microsoft Corp.
over the tools to create, distribute and manage content online.
The deal, announced Monday, would put Adobe's ubiquitous Acrobat document-sharing
program under the same roof as Macromedia's Flash software for creating
and viewing interactive content on Web sites independent of operating
systems or devices.
Adobe, which also makes the Photoshop image-editing line and a host
of other programs for creative professionals and consumers, also gets
the Web site-building application Dreamweaver as well as software for
enabling real-time collaboration among business users.
Shares of San Francisco-based Macromedia closed at $36.72, gaining
$3.27, or nearly 9.8 percent, Monday on the Nasdaq Stock Market. San
Jose-based Adobe's shares lost $5.89, or 9.7 percent, to close at $54.77
Under the deal, which both companies' boards approved, Macromedia stockholders
get 0.69 shares of Adobe common stock for every share of Macromedia
common stock. Based on Monday's closing price, the deal would be worth
The $3.4 billion value was based on Adobe's Friday closing price, which
represented a 25 percent premium. Macromedia stockholders are to own
about 18 percent of the combined company when the deal closes.
Executives of both companies pointed to new market opportunities and
downplayed the cost savings. The acquisition, Adobe said, would at
most be "slightly accretive" to its earnings in the first
year after closing, which is expected this fall.
"This is all about growth," Adobe CEO Bruce Chizen said. "We're
doing this because we believe the combined offerings will be even more
compelling to our customers given the challenges they're going to face
in trying to communicate information in this very complex environment."
As digital content increasingly finds its way onto cell phones, handheld
computers and even televisions, the makers of the tools for working
with information are racing to make deals so their technology is not
left out as new standards emerge.
Macromedia has had success in persuading makers of cell phones and other
non-PC devices to embed its Flash technology in their devices, Chizen
said in an interview. Since the start of the year, Macromedia has inked
deals with Nokia and Samsung Electronics.
Adobe has had less success in this regard, said Chizen.
Macromedia has done a great job both in understanding and gaining
value from the non-PC market," he said. That, he added, "is
what is very attractive to us."
boosting revenues from software sales and licensing, the combined
companies will profit as more developers buy the specialized tools
required to create content. They'll also have a greater say in creating
standards for new mobile devices.
Microsoft also has ambitions beyond the PC market it currently dominates
with its Windows operating system, Web browser and other
technology. It currently offers a simplified version of Windows for
both cell phones and handhelds — as well as "light" versions
of its Web browser and media player.
In addition, the world's largest software maker is expected to include
technology in its next-generation Windows that could threaten Adobe's
dominance with its Acrobat software and the portable document format
it invented. Microsoft also has been launching programs to help improve
collaboration within the workplace.
With Macromedia's Breeze real-time collaboration software, Adobe
will be able to offer more of an all-encompassing suite of offerings
it had before the merger.
At its simplest level, Adobe wants to get into a new content type," said
Connie Moore, an analyst at Forrester Research. "At a more strategic
level, this puts Adobe in a very different place in terms of competing
against Microsoft or Oracle or IBM."
Still, Adobe's move is most likely a pre-emptive move against Microsoft,
said Steven Ashley, an analyst at Robert W. Baird & Co. "It
makes it harder for Microsoft to challenge Adobe," he said. "As
it stands today, they don't compete very much against one another."
The transaction, contingent upon the approval of regulators as well
as the shareholders of both companies, is expected to be completed
fall. The combined company will keep Adobe's name and San Jose headquarters.
Adobe and Macromedia, until recently, were bitter rivals, squabbling
over the look of the interfaces used in their software and financial
analysts and customers had speculated about a merger for years.
Chizen will remain as chief executive of the combined company and
Adobe's Shantanu Narayen will continue as president and chief operating
Macromedia's chief executive, Stephen Elop, will join Adobe as president
of worldwide field operations. And Rob Burgess, Macromedia's chairman
and former CEO, will take a seat on Adobe's board.
The companies did say there would be cost savings out of the deal
but did not mention layoffs specifically.
Adobe employs 3,700 people in offices around the world. It reported
revenues of $1.67 billion for fiscal 2004. Macromedia reported sales
of $370 million
in fiscal 2004.
On Monday, both companies also updated their financial guidance. Adobe
said it expects sales and profits to be at the upper end of the range
of its previous estimates. Macromedia said it expects to
its previous forecast.
It's a lot easier to combine two companies that are healthy and doing
really well with lots of growth than it is to try to acquire and integrate
a company that is broken," Chizen said. "That is the piece
that gave us comfort in taking the next step."