Flash, bang, wallop – Adobe buys Macromedia

18 Apr 2005

Content software firm Adobe Systems is to acquire the web development software player behind Flash web software, Macromedia, for an estimated all-stock transaction valued at €2.6bn (US$3.4bn). The deal has received mixed reactions from analysts who fear a combined software juggernaut could yet spark anti-competition court battles.

Adobe, which employs 65 people in Ireland, says the combination of both companies will provide its customers – predominantly in the graphic design and web development communities – with a richer, more powerful set of solutions for creating and managing content across multiple operating systems, devices and media.

Under the terms of the agreement, which has been approved by both boards of directors, Macromedia stockholders will receive, at a fixed exchange ratio, 0.69 shares of Adobe common stock for every share of Macromedia common stock in a tax-free exchange.

Based on Adobe’s and Macromedia’s closing prices on Friday (April 15) this represents a price of US$41.86 per share of Macromedia common stock. Upon the close of the transaction, Macromedia stockholders will own approximately 18pc of the combined company on a pro forma basis.

“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 Bruce Chizen, chief executive officer of Adobe.

“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.”

In the new combined operation, Chizen will continue as CEO while the CEO of Macromedia will join Adobe as president of worldwide field operations.

The news received a mixed reaction from analysts who cited “positives and negatives” that will result from the combined Adobe/Macromedia graphics powerhouse.

Bola Rotibi, a senior analyst with Ovum commented: “This acquisition is major news for the software industry, although not altogether surprising. Macromedia has regularly been seen as a prime candidate for acquisition.

“This makes good sense from both companies’ perspective and this is clearly signalled in the fact that it comes with the blessing of both boards. 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.”

Rotibi continued: “Macromedia, on the other hand, has a much stronger presence in graphical user interfaces (GUIs) for the desktop with its Dreamweaver and Flash product set. 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.

“The deal itself is not without issues from a competition standpoint since the resulting business will almost certainly hold a sizeable chunk of the GUI market that would make it difficult for some smaller vendors to play in. The companies have overlapping product sets and a product portfolio that goes in many different directions. That is both a positive and a negative and will need to be addressed, going forward, “Rotibi said.

Rotibi also warned that the transaction could result in anti-competition court cases arising from competitors’ inability to compete against what in effect will be a software juggernaut.

“Adobe’s revenues are around $2bn and Macromedia’s are around $350m to $400m – the revenue potential of their combined market play and future potential is substantial. 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 anti-trust grounds.

“Ultimately both Adobe and Macromedia both have superb cross platform technologies and if they can exploit the ubiquity of the PDF reader and Flash, and really emphasise the “any client anywhere” theme they will be a in a formidable position to dictate industry directions for the future,” Rotibi concluded.

By John Kennedy