Adobe Buys Macromedia in $3.4B Stock Deal

[Bellamy]

Adobe Buys Macromedia in $3.4B Stock Deal

 

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 Monday, 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, Monday on the Nasdaq Stock Market. San Jose-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 Monday'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 this fall.

 

 

"This is all about growth," Adobe CEO 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 onto cell phones, handheld 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, Chizen said in an interview. Since the start of the year, Macromedia has inked deals with Nokia and Samsung Electronics.

 

 

Adobe has had less success in this regard, said Chizen.

 

 

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

 

 

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

 

 

But Microsoft also has ambitions beyond the PC market it currently 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 handhelds — as well as "light" versions of its Web browser and media player.

 

 

In addition, the world's largest software maker is expected to include technology in its next-generation Windows that could threaten Adobe's dominance with its Acrobat software and the portable document format it invented. Microsoft also has been launching programs to help improve collaboration within the workplace.

 

 

With Macromedia's Breeze real-time collaboration software, Adobe will be able to offer more of an all-encompassing suite of offerings than it had before the merger.

 

 

"At its simplest level, Adobe wants to get into a new content type," said Connie Moore, an analyst at Forrester Research. "At a more strategic level, this puts Adobe in a very different place in terms of competing against Microsoft or Oracle or IBM."

 

  

 

 

 

Still, Adobe's move is most likely a pre-emptive move against Microsoft, said Steven Ashley, an analyst at Robert W. Baird & Co. "It makes it harder for Microsoft to challenge Adobe," he said. "As it stands today, they don't compete very much against one another."

 

The transaction, contingent upon the approval of regulators as well as the shareholders of both companies, is expected to be completed by the fall. The combined company will keep Adobe's name and San Jose headquarters.

 

Adobe and Macromedia, until recently, were bitter rivals, squabbling over the look of the interfaces used in their software and financial analysts and customers had speculated about a merger for years.

 

Chizen will remain as chief executive of the combined company and Adobe's Shantanu Narayen will continue as president and chief operating officer. Macromedia's chief executive, Stephen Elop, will join Adobe as president of worldwide field operations. And Rob Burgess, Macromedia's chairman and former CEO, will take a seat on Adobe's board.

 

The companies did say there would be cost savings out of the deal but did not mention layoffs specifically.

 

Adobe employs 3,700 people in offices around the world. It reported revenues of $1.67 billion for fiscal 2004. Macromedia reported sales of $370 million in fiscal 2004.

 

On Monday, both companies also updated their financial guidance.

 

Adobe said it expects sales and profits to be at the upper end of the range of its previous estimates. Macromedia said it expects to exceed its previous forecast.

 

"It's a lot easier to combine two companies that are healthy and doing really well with lots of growth than it is to try to acquire and integrate a company that is broken," Chizen said. "That is the piece that gave us comfort in taking the next step."

source: http://rds.yahoo.com/S=53720272/K=adobe/v=...e_macromedia_23

 

maybe we can expect some very good software combine the best of both company soon.

[Clari]

Ahhh coolness! A merged software would save a lot of time for designers. If only I could afford *cough*download*cough* their software when it comes out... LOL

[AllCeline]

This is awsome! I'm a PS adict, and I wouldn't ba able to live without flash! SWEET!

[tativale]

Cool! thanks for the info!

[Koolan]

Great, hope making flash would be easier later

[Bellamy]

Adobe Swallows Macromedia:

Implications for the Future of the Graphics Software Industry

 

Adobe announced its plan to acquire Macromedia last month, in an all-stock transaction valued at the time at $3.4 billion. This means that after 20 years, the graphics application industry has whittled itself down to just three companies from the many that existed in the early days - and just one of them is really like what it was at the dawn of desktop publishing.

 

The deal, if approved by both boards and the U.S. Federal Trade Commission, would give Macromedia stockholders about 18 percent of Adobe. Adobe's stock took a plunge following the news, and remains about 10 percent below its pre-announcement price; Macromedia is coasting over 10 percent higher.

 

This merger closes the final pages of the third chapter of the history of professional graphics tools on the desktop, were such a book to be written. Chapter 1 would document the emergence of the Macintosh, and associated small independent companies that earned all of their income in a competitive marketplace. Chapter 2 would mark the rise of Windows, with tools being ported to that platform and the majority of dollar sales of graphics software crossing to Windows users. This in turn caused consolidation in the industry, and the failure or transfer of products that couldn't adapt. Chapter 3 would describe the rise and collapse of the Internet and related authoring tools, and the drop in importance of graphics software developers as digital media goes mass-market.

 

 

So what does Chapter 4 have in store for us? Most likely, Adobe, Microsoft, and Apple contending for consumer and professional creation tool market share - in other words, "it's all about the operating system." Quark and Corel, the other two early companies still standing, are hardly a footnote in this chapter.

 

Macintosh Drives Early Graphics Companies

 

After the Macintosh computer first appeared in 1984, four companies quickly took over the graphics program field: Adobe, Aldus, MacroMind, and Quark. (Corel was founded in 1985 as a research firm and didn't release CorelDraw until five years later; it dominated Windows graphics tools for much of the 1990s.)

 

Each company had its strengths. Adobe was the typographic and vector giant. Aldus and Quark each had page-layout programs that boasted legions of adherents, practically from the first opening of the boxes' shrink-wrap. MacroMind had multimedia authoring tools.

 

As Windows matured from its meager 1.0 start - under which PageMaker and a number of other graphics programs could finally run - up to the workable 3.1 and desirable 95 releases, its importance as a graphics platform dramatically increased as well. Windows broke the Mac stranglehold on electronic production for print and interactive media. This had its effect on all the graphics software firms, too, which consolidated to take more effective steps to reach out to the Windows platform.

 

Macromedia Achieves Web Dominance

 

In 1992, MacroMind merged with Authorware to become Macromedia. (A small irony: Authorware's eponymous product began life as Mac-only program in the late 80s before transitioning to Windows-only authoring post-acquisition.) The following year it released the first version of Director for Windows.

 

In 1995, Macromedia bought Altsys FreeHand - which until 1994 was Aldus FreeHand, but more on that in a moment - and then later all of Altsys, including Fontographer, its font-design program. Macromedia introduced its Web-page-editing program Dreamweaver in 1998, and subsequently beefed it up with two acquisitions. In 1999, it purchased Andromedia, a Web traffic analysis firm, and in 2001 bought Allaire, the firm behind the Cold Fusion scripting language.

 

Macromedia's combination of scripting and interactivity led it to dominance in the Web-based player world. Shockwave and Flash have become de facto standards for vector-based interactive presentations. Its closest competitor is the industry standard SVG (Scalable Vector Graphics) format, heavily supported by Adobe. SVG has gained acceptance, but does not feature the simplicity, good authoring tools, or adoption by creative professionals of either of Macromedia's tools.

 

Likewise, Macromedia's integration of Cold Fusion and ASP into Dreamweaver cemented its ownership of the graphical Web site market. Tied-in scripting and database support drove Dreamweaver's adoption over Adobe GoLive, formerly CyberStudio, which Adobe had bought from the German firm GoLive, Inc.

 

Print Design Turf Wars

 

During the time that MacroMind was taking over the interactive and Web authoring world, Aldus and Adobe became dominant in page layout, illustration, high-end video editing and image editing.

 

Aldus had built a large suite of products, starting with PageMaker, by adding FreeHand (produced by Altsys under license to Aldus), Persuasion (arguably the best presentation software of its day), SuperPaint, and IntelliDraw.

 

Adobe started with fonts and PostScript, and launched Illustrator for vector-based illustration. Illustrator was always in close feature competition with FreeHand. But Adobe's juggernaut was Photoshop, which came out in 1990. Photoshop emerged from work by two genius brothers, one at Industrial Light and Magic and the other at graduate school in Ann Arbor, MI. It was an immediate success, destroying its fine competitor Letraset (later Fractal Design) ColorStudio. While other image editors have waxed and waned, like Corel Photo-Paint, Photoshop has remained the tool of choice.

 

With Photoshop, Illustrator, fonts, and PostScript licensing driving sales, Adobe became an ever-larger company, and finally made a merger offer to Aldus in 1994. The combination of the two required the spin-off of Aldus FreeHand with the rights reverting back to Altsys; Altsys resold those rights to Macromedia the following year, and then sold itself. (Altsys's founder now develops emerging nanotechnology assembler tools.)

 

Acrobat grew from being a footnote when Adobe first introduced it - with per-seat pricing for every user - to become the world's only real document interchange format that retains the look and feel of original documents. Even Microsoft has been unable to compete effectively with Acrobat, which is saying something. Microsoft hopes to challenge Acrobat with Metro, a tool that will be included next year with the codenamed Longhorn release of Windows.

 

Adobe acquired Frame the next year, the third remaining major page-layout program developer, and introduced InDesign in 1999 as the successor to PageMaker, which had grown long in the tooth and was being handily beat by QuarkXPress.

 

The personal computer-based video-editing market was also largely Adobe's for several years, starting from when it purchased ReelTime from SuperMac in 1991 (which was rebranded as Premiere) through its acquisition of After Effects from its 1994 Aldus merger (Aldus having bought it the previous year).

 

Although there were plenty of higher-end professional video-editing competitors, Apple's entrance into the consumer market with iMovie in the late 1990s and the pro market with Final Cut Pro in 1999 pushed Adobe to refocus on the high end and cut its Mac version of Premiere. In a bit of poetic justice, Macromedia sold Final Cut Pro to Apple in 1999 after years of it languishing at the firm. (Even more intriguing is that Final Cut Pro's developer was the original programmer of ReelTime, and continued at Adobe with Premiere for many years.)

 

A New Competitive Landscape

 

Now we've reached the end of the road. Adobe's competitors are no longer Quark or Viewpoint - formerly MetaCreations, and other names before that - but rather Apple and Microsoft. While striving to release software that works on both Windows and the Mac OS, they're being battered at the top by Apple's professional video tools, and at the bottom by Microsoft's and Apple's home layout and photo tools.

 

Both operating-system vendors clearly have more software heading to market in future releases that will challenge Adobe. For instance, Apple added Core Image in its Tiger release in April 2005, which brings third-party software developers high-powered imaging tools, as well as updating its built-in Preview image viewer and converter. Microsoft has big plans for Longhorn and related programs that will allow digital media management and creation; those plans will fully break in 2006 if Longhorn ships then as is now expected.

 

 

Adobe's purchase of Macromedia makes perfect sense, to allow it to achieve the scale needed to compete against operating system vendors; for that reason, it probably won't raise anti-trust flags. The two companies have almost as small an overlap as when Aldus and Adobe merged, which resulted in Adobe unloading FreeHand to Macromedia. If the FTC cares at all, it may force Adobe to spin off GoLive, FreeHand, and Fireworks in favor of market leaders Dreamweaver, Illustrator, and Photoshop.

 

Graphics professionals have some fear about this consolidation, because they already pay large fees for each new release of software from either vendor. But I believe that the trend for professional software has been progressively lower over the years, and that what is driving up software costs of late is in fact having to purchase separate suites or applications from both Adobe and Macromedia.

 

Ten years ago, graphics software was much more expensive in both absolute and inflation-adjusted terms. Product cycles were often ridiculously small, and involved paying upgrade fees for new versions of software containing few changes. Today, Adobe and Macromedia have both slowed way down and emphasized bundles. An owner of just Photoshop CS, for instance, pays a total of $749 for Acrobat Pro 7, InDesign CS2, Illustrator CS2, GoLive CS2, Version Cue CS2, and Photoshop CS2.

 

Since many designers use Macromedia's tools to author Flash and Shockwave presentations and manage Web sites, while they turn to Photoshop for image editing, vector art, and layout, a suite that combines all of that will certainly be cheaper than the current separate purchases.

 

But it's not about dollars and sense - it's about survival. Adobe's future isn't in continuing to churn out the same software that it and all of its acquired companies produce today. Rather, the future is in cell phones and Internet appliances - devices that people carry and use everywhere, or that are ubiquitous.

 

The one area of stupendous growth that Apple and Microsoft don't own yet is this market. Microsoft has its fingers all over it, but has no winning position yet. Apple and Motorola may eventually ship a phone that can play iTunes Music Store songs, but that's about the extent of it.

 

Adobe hopes through its acquisition of Macromedia to be positioned to continue to grow the indolent professional segment, while really leaping into tools that let professionals build interactive content for portable devices. Remember that the latest huge creative market materialized last year in, of all things, ring tones, with billions of dollars worth sold in 2004. Adobe wants to be in on the next spin of the billion-dollar merry-go-round, and now feels positioned to grab the brass ring.

Source: http://www.tomshardware.com/business/20050503/index.html