Software Marketing Journal

Adobe to Buy Macromedia

April 18 (Bloomberg) -- Adobe Systems Inc., maker of Acrobat and Photoshop software, agreed to buy Macromedia Inc. for about $3.4 billion, adding programs that display images and sounds on Web pages.

Investors will receive 0.69 share, worth $41.86 at the close of trading April 15, for each Macromedia share, San Jose, California-based Adobe said in a statement today. That values San Francisco-based Macromedia at a 25 percent premium.

The Macromedia purchase, Adobe's biggest ever, gives Chief Executive Bruce Chizen a broader set of programs to fend off expected competition from Microsoft Corp., which may include more document features in the next version of its Windows software. Macromedia's Flash, used in 98 percent of desktop computers, also reduces Adobe's reliance on Acrobat software that forms PDF files.

``It makes a lot of sense,'' said Stuart O'Gorman, who helps manage $700 million of technology stocks including shares in Adobe and Macromedia at Henderson Global Investors in London. ``It gives them a very broad-based suite of products.''

Adobe shares fell $4.66, or 7.7 percent, to $56 at 9:30 a.m. New York time in Nasdaq Stock Market composite trading. Macromedia gained $4.13, or 12 percent, to $37.58.

Microsoft's Longhorn

Adobe said it expects second-quarter profit to be at the high end of its forecasts after ``strong demand'' for Acrobat, which lets users create, view and print documents. Macromedia said fiscal fourth-quarter sales beat its own estimates.

``Macromedia and Adobe have been focused on the mission of helping communities and organizations work better,'' Chizen said today on a conference call. ``That's not been a strong suit for Microsoft.''

Microsoft's next Windows, codenamed Longhorn, is due in late 2006. Chizen, 49, who will remain chief executive officer of the combined company, said the program will have similar features to those offered by Macromedia and Adobe.

``Macromedia's Flash is a powerful combination,'' said Sasa Zorovic, an Oppenheimer & Co. analyst in Boston who rates Adobe and Macromedia ``neutral.'' ``Photos are becoming digital. Video is becoming digital. Newspaper and magazines are publishing on the Web. All these media, they are interwoven.''

Adobe is paying 43.8 times operating profit and 7.5 times sales for Macromedia, according to data compiled by Bloomberg.

Macromedia stock peaked at $120.875 in July 2000 and fell as low as $5.80 in August 2002. In the past five years, the shares dropped 63 percent, compared with a 21 percent increase for Adobe.

Posted by Harry at April 18, 2005 07:30 AM