Adobe Buys Macromedia for $3.4 Billion

In a stock deal valued at $3.4 billion, Adobe on Monday announced it has acquired rival Macromedia. The merger, which brings together Adobe's ubiquitous PDF document format and graphics suite with Macromedia's market-leading animation tools, pits the combined company squarely against Microsoft.

Under the buyout terms, Macromedia shareholders receive 0.69 shares of Adobe for every Macromedia share. The number represents a 25 percent premium over Macromedia's stock price. The deal is expected to close in the fall pending regulatory approvals.

Adobe CEO Bruce Chizen will retain his position while Macromedia CEO Steven Elop becomes Adobe's president of worldwide field operations.

Although there is quite a bit of overlap in the software developed by the two companies, both said the acquisition is focused on growth, not cutting costs. However, no specifics were given as to the fate of each company's product lines or development focus.

"Through the combination of our powerful development, authoring and collaboration tools -- and the complementary functionality of PDF and Flash -- we have the opportunity to drive an industry-defining technology platform that delivers compelling, rich content and applications across a wide range of devices and operating systems," Adobe said in a statement.

The deal underscores the growing concern that Microsoft is set to encroach on the wide market share enjoyed by both Adobe and Macromedia. Adobe's PDF document format is an industry standard for businesses, and its Acrobat Reader software ships with most PCs.

Although Adobe brings in most of its revenues from its Photoshop and Illustrator design tools, the company has begun to center its business around document creation and collaboration using PDF.

Macromedia's Flash, meanwhile, is the standard for Web animation and is beginning to dominate mobile multimedia as well; Flash is expected to ship with 75 percent of mobile phones within five years.

The growing reach of PDF and Flash has sparked concern at Microsoft, which in turn began to develop its own offerings. Office 2003 shipped with InfoPath for creating forms and sharing information, and Longhorn is expected to ship with further document-sharing alternatives to PDF.

Microsoft is also readying a new user interface language for the display of rich media dubbed "XAML." The company was rumored to be working on a tool called "Sparkle" to automate the creation of XAML interfaced, which many believed could compete directly with Macromedia Flash.

Adobe's Chizen fully expects Microsoft to push competing products, but says the newly combined company will be better prepared to fend off Redmond's advances.

"Inertia is in Adobe's favor; big companies don't quickly shift development products," Jupiter Research senior analyst Joe Wilcox told BetaNews. "Flash is widely used and available across platforms and Web browsers. Even if Microsoft developed the most compelling Flash alternative imaginable, shift in adoption would take years."

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