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Adobe to Buy Macromedia for $3.4B - InternetNews.
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Adobe to Buy Macromedia for $3.4B

UPDATED: Adobe Systems agreed to acquire rival Macromedia for $3.4 billion in a deal that sets the stage for a showdown with Microsoft in the graphics software space.

Adobe and Macromedia have fought it out in the market for creating digital documents and other forms of rich media for years. Macromedia is particularly prized for its Flash technology, including the company's multimedia authoring program and the Flash Player, which blends graphics, sound and streaming video and audio.

San Francisco-based Macromedia also makes a popular development product called Dreamweaver, which allows programmers to build Internet applications and Web sites.

In addition to its popular image management software Photoshop, Adobe is also known for its Portable Document Format (PDF) technology that allows users to shuttle advanced digital documents via e-mail.

The combination of Adobe's digital document prowess and Macromedia's Web development specialty could make the company a formidable foe for Microsoft, which has its own graphics software.

Microsoft makes such products as Expression, Image Composer, PhotoDraw, Paint, Picture It!, and Digital Image Pro. For business users, Microsoft offers Office Visio 2003, a drawing and diagramming solution that helps users articulate business and technical concepts such as visual diagrams.

But Microsoft has a greater graphics piece in the works that could challenge Adobe's digital document skills, a subsystems code-named Avalon. This "visualization" component blends an advanced application user interface, documents and media content. Avalon is slated to appear in the company's next-generation Longhorn operating system in 2006.

Purchasing Macromedia would help Adobe stake new ground for selling graphics software to mobile and enterprise segments, which Adobe CEO Bruce Chizen said on a conference call would help Adobe customers cope better with the explosion in digital information.

"Together, we will be able to offer customers full, integrated solutions for next-generation communication and interaction, especially on non-PC devices," Chizen said, noting that the high-tech sector is seeing evolving methods of accessing that information, including documents, images, Internet, television and new wireless and non-PC devices.

Stephen Elop, Macromedia president and CEO, who will join Adobe as president of worldwide field operations and report to Chizen if the deal closes, agreed.

"It is clear that the combined companies will offer a more complete, cross-media, rich-client platform for PC and non-PC devices," Elop said. "For example, if you look at the best attributes of Flash and PDF, they can complement each other in ways that can drive the art of communication and capitalize on the information explosion that Bruce discussed."

Macromedia stockholders will receive .69 shares of Adobe stock for every share of Macromedia stock. The deal represents a price of $41.86 per share of Macromedia stock, based on Adobe's and Macromedia's closing prices on Friday, April 15. Should the deal close in fall 2005 as expected, Macromedia stockholders would own nearly 18 percent of the combined company.

If the deal closes, Chizen will remain CEO and Shantanu Narayen will remain president and COO. Murray Demo will remain executive vice president and chief financial officer. John Warnock and Charles Geschke will remain as co-chairmen of the board of directors of the combined company and Rob Burgess, chairman of the Macromedia board of directors, will join the Adobe board.

Chizen said Adobe will retain both its San Jose headquarters, as well as Macromedia's in San Francisco.

Chizen also said Adobe's board of directors has approved a post-acquisition stock repurchase program of $1 billion, to be consistent with the company's overall commitment to deliver value to its stockholders.

Funded from working capital, the program is expected to commence following the close of the accord.

Separately, Adobe said it expects to achieve results toward the high end of its second-quarter financial target ranges due to strong demand of its Acrobat software, which lets users create and exchange PDF documents. The company now expects second quarter revenue between $475 million to $495 million on earnings per share of 51 cents to 55 cents.

The company will report second-quarter fiscal 2005 results on June 16 after the market closes.