- The Washington Times - Monday, April 18, 2005

SAN JOSE, Calif. (AP) — By acquiring rival software maker Macromedia Inc. in a deal originally valued at $3.4 billion, Adobe Systems Inc. is positioning itself to do battle with Microsoft Corp. over the tools to create, distribute and manage content online.

The deal, announced yesterday, would put Adobe’s ubiquitous Acrobat document-sharing program under the same roof as Macromedia’s Flash software for creating and viewing interactive content on Web sites independent of operating systems or devices.

Adobe, which also makes the Photoshop image-editing line and a host of other programs for creative professionals and consumers, also gets the Web site-building application Dreamweaver as well as software for enabling real-time collaboration among business users.

Shares of San Francisco-based Macromedia closed at $36.72, gaining $3.27, or nearly 9.8 percent, yesterday on the Nasdaq Stock Market. San Jose, Calif.-based Adobe’s shares lost $5.89, or 9.7 percent, to close at $54.77

Under the deal, which both companies’ boards approved, Macromedia stockholders get 0.69 shares of Adobe common stock for every share of Macromedia common stock. Based on yesterday’s closing price, the deal would be worth $3.07 billion.

The $3.4 billion value was based on Adobe’s Friday closing price, which represented a 25 percent premium. Macromedia stockholders are to own about 18 percent of the combined company when the deal closes.

Executives of both companies pointed to new market opportunities and downplayed the cost savings. The acquisition, Adobe said, would at most be “slightly accretive” to its earnings in the first year after closing, which is expected in the fall.

“This is all about growth,” Adobe Chief Executive Officer Bruce Chizen said. “We’re doing this because we believe the combined offerings will be even more compelling to our customers given the challenges they’re going to face in trying to communicate information in this very complex environment.”

As digital content increasingly finds its way into cell phones, hand-held computers and even televisions, the makers of the tools for working with information are racing to make deals so their technology is not left out as new standards emerge.

Macromedia has had success in persuading makers of cell phones and other non-PC devices to embed its Flash technology in their devices, Mr. Chizen said. Since the start of the year, Macromedia has inked deals with Nokia and Samsung Electronics.

Adobe has had less success in that regard, Mr. Chizen said.

“Clearly, Macromedia has done a great job both in understanding and gaining value from the non-PC market,” he said. That “is what is very attractive to us.”

Besides boosting revenue from software sales and licensing, the combined companies will profit as more developers buy the specialized tools required to create content. They will also have a greater say in creating standards for new mobile devices.

But Microsoft also has ambitions beyond the PC market it dominates with its Windows operating system, Web browser and other content-playing technology. It currently offers a simplified version of Windows for both cell phones and hand-helds — as well as “light” versions of its Web browser and media player.

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