Avid hopes to bump up its line of broadcast products and begin selling in the consumer video business with its announcement it will acquire Pinnacle in a cash and stock transaction worth about $462 million.

The merger would combine Avid Technology Inc., which makes software and hardware for capturing, editing and distributing digital video and media, with Pinnacle Systems Inc.'s broadcast playout server and on-air graphics system, which Avid hopes will be a boon for its own end-to-end broadcast production pipeline.

And, with Pinnacle's consumer video business, Avid will now have its own new consumer video division that it hopes will be an immediate revenue generator.

"First off, Avid is trying to knock off some competition," Todd Chanko, an analyst for Jupiter Research, said.

"Avid really embraced the digital video editing world right away. It changed how TV editing is done, because 10 or 15 years ago everything was analog. I was a TV producer for 12 years, and Avid really changed the way TV does business. Pinnacle is slightly more consumer-focused, and Avid is banking on that market to continue to help them expand."

Under the terms of the agreement, Pinnacle shareholders will receive 0.0869 shares of Avid stock and $1 in cash for each Pinnacle share.

At closing, it is expected that Avid will issue approximately 6.2 million shares and pay $71.3 million in cash, for a total estimated value of $462 million, based on Avid's stock price of $62.95 at market close on Friday.

Upon completion of the transaction, the 6.2 million shares to be issued to Pinnacle's former shareholders will represent approximately 15 percent of Avid's outstanding common stock.

The acquisition is expected to close in the second or third quarter of 2005.

Avid President and CEO David Krall said in a conference call to investors and the media on Monday, "We see this acquisition as the next logical step in our long-term strategy for both consumer and broadcast.

"By acquiring Pinnacle's consumer video business, Avid will be able to tap into the next generation of video editors while they are still learning their craft. This creates a very large potential customer base for Avid's future.

"At the same time, we believe that Pinnacle's professional broadcast offerings will fit seamlessly with Avid's business, extending our end-to-end broadcast solutions with servers and on-air graphics products.

"We think it would be hard to find a more complementary match for these two businesses than what this combination provides."

Krall added: "As a result of this transaction, we expect to derive savings from a number of sources, including reducing public company expenses, combining infrastructure functions where appropriate, and providing our global sales teams with a broader portfolio of product offerings."

Also on the call Monday was Pinnacle Chairman and CEO Patti Hart: "We believe that this transaction creates significant value for our shareholders and provides excellent opportunities for continued growth for the combined company.

"Avid has built a strong, well-deserved reputation for efficient business management while continuing to live up to its tradition of technological innovation in the video and audio industries.

"We see this as the right move for Pinnacle, and we look forward to joining the Avid family."

Next Page: Necessary approvals.