Adobe to buy Macromedia for $3.4 billion

Deal would make it dominant in software for building Web pages

April 19, 2005|By BLOOMBERG NEWS

Adobe Systems Inc., maker of Acrobat and Photoshop software, agreed to buy Macromedia Inc. for about $3.4 billion, adding programs that animate Web sites as it prepares for a challenge from Microsoft Corp.

Macromedia stockholders will receive 0.69 Adobe share for each of their shares, Adobe said in a statement yesterday. That values Macromedia at $41.86, a 25 percent premium to the closing price Friday.

Adobe stock dropped $5.99 yesterday, or 9.8 percent, to $54.77. Macromedia gained $3.27, or 9.7 percent, to $36.72.

Adobe Chief Executive Officer Bruce R. Chizen said he wants a broader set of programs to fend off Microsoft, which plans to include more document features in the next version of its Windows software.

Adobe would combine Macromedia's Flash software, used in 98 percent of desktop computers, with its Acrobat software that is used to create and share PDF documents files.

"It makes a lot of sense," said Stuart O'Gorman, who helps manage $700 million in 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 is paying 43.8 times operating profit and 7.5 times sales for the San Francisco company, according to data compiled by Bloomberg.

Yesterday's fall in Adobe's share price may signal that investors are concerned the San Jose, Calif., company may be paying too much. Symantec Corp.'s planned purchase of Veritas Software Corp. is 26 times operating profit and 7 times revenue. "Software acquisitions are viewed as inherently risky," said Josh Overholt, an analyst at U.S. Bancorp Asset Management in Minneapolis. The firm owns Adobe and Macromedia shares and manages $120 billion.

The transaction also may raise antitrust issues, said Mark Schappel, a KeyBanc Capital Markets analyst in New York. Adobe's GoLive program and Macromedia's Studio MX would have almost all of the market for software that helps design Web pages, he said.

That may delay government approval, Schappel said.

The addition of Macromedia's products to Adobe's Acrobat and Photoshop software, which allows users to crop and change digital photos, could become 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," Zorovic said. "All these media, they are interwoven."

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