Adobe executives say the deal will create opportunities in mobile applications and hail the "complementary functionality" of Flash and PDF.In a move that is likely to have major ramifications for the publishing, print and Web design industries, Adobe Systems Inc. has announced it will buy archrival Macromedia Inc. in a deal worth around $3.4 billion.
The deal, which has been approved by both sets of directors, is an all-stock transaction under which Macromedia shareholders will receive 0.69 shares of Adobe common stock, which will mean that former Macromedia shareholders will hold around 18 percent of the combined companies after the deal. Calculated from prices at close of the markets last Friday, this makes the deal worth $41.86 per share of Macromedia common stock.
Adobe's Bruce Chizen will continue as CEO of the company, which will continue to be known as Adobe Systems Inc., with Shantanu Narayen remaining as president. Stephen Elop, president and chief executive of Macromedia, will join the Adobe board as president of worldwide field operations, while Rob Burgess, chairman of Macromedia, will also join the Adobe board.
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"Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of compelling content and applications—from documents and images to audio and video," said Adobe's Chizen in a prepared statement. "By combining our powerful development, authoring and collaboration software—along with the complementary functionality of PDF and Flash—Adobe has the opportunity to bring this vision to life with an industry-defining technology platform."
Adobe and Macromedia have long competed directly in the digital arts market, with several products going head-to-head. While for the most part Adobe has tended to win these battles—for example, in the graphics market where the company claims a U.S. market share of 82 percent for Illustrator compared with 18 percent for FreeHand—Macromedia has had two notable successes with Dreamweaver in the Web design market and Flash, which is the de facto standard for rich media content online.
According to Bola Rotibi, senior analyst at Ovum Ltd., the deal makes sense from a product perspective. "Adobe has traditionally been strong in the offline graphical design business particularly with respect to desktop publishing in the newspaper and magazine publishing world. The company has also made its PDF reader ubiquitous in the desktop space and has a strong enterprise play.
"Macromedia, on the other hand, has a much stronger presence in graphical user interfaces for the desktop with its Dreamweaver and Flash product set," Rotibi said. "Both companies have made plays into the wireless market with the promise of rich media applications and cross-platform access. Macromedia, however, has made stronger inroads into this market with recent deals with key operators and device manufacturers that will see Flash expanding its reach from the desktop environment to wireless platforms."
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In a conference call with reporters and analysts, executives from the two companies highlighted the potential for growth into new markets as one of the prime reasons behind the deal.
Narayen described the acquisition as "a significant opportunity to grow into new markets," particularly mobile devices, where Macromedia has been making some headway in the recent past.
Elop agreed with this, claiming that "another era of platform expansion has begun with all forms of mobile [technology]," adding that the backing of Adobe would mean there was "more that we can bring to our mobile partners."
However, Ovum's Rotibi cautioned that although the deal made sense for the two companies, it could still draw some fire on competition grounds. "Competitors both large and small will be concerned, and there may be anti-competition claims. There can certainly be no doubt that the resulting company, if allowed to go ahead, will make it very difficult for others to play and more importantly to acquire.
"Adobe's revenues are around $2 billion, and Macromedia's are around $350 million to $400 million," Rotibi added. "The revenue potential of their combined market play and future potential is substantial."
Executives for the two companies declined to comment on whether there had been other offers for Macromedia, but it appears unlikely that any other competitor will come in and make a counteroffer—a move that would be resisted by the board of Macromedia.
According to Rotibi, the most likely other suitor—Microsoft Corp.—is an unlikely partner because of its history of antitrust cases. "The compelling offering of a cross-platform play that serves Microsoft's own environment will make it a formidable competitor for the Redmond giant, but we think it would have had trouble making its own bid for Macromedia on antitrust grounds," he added.
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