Adobe Systems today announced a definitive agreement to acquire Macromedia in an all-stock transaction valued at approximately $3.4 billion.

Adobe has recently released version 2 of its market-leading digital content-creation application collection, Creative Suite – featuring Photoshop, InDesign, Illustrator, GoLive and Acrobat.

Macromedia's software portfolio includes the Studio MX products Dreamweaver, Flash, FreeHand, and Fireworks. Other Mac products Director and Contribute.

Soon after the release of the Macintosh Apple bought 15 per cent of Adobe, and alongside Aldus PageMaker the two companies pioneered the desktop publishing revolution with the combination of Apple's Mac graphical user interface and LaserWriter printers and Adobe's PostScript font software.

In July 1989 Apple sold all 3,423,792 shares of its common stock holdings of Adobe, netting $79 million.

Powerful solutions

A statement from the two companies states that : "The combination of Adobe and Macromedia will provide customers a more powerful set of solutions for creating, managing and delivering compelling content and experiences across multiple operating systems, devices and media. Together, the two companies will meet a wider set of customer needs and have a significantly greater opportunity to grow into new markets, particularly in the mobile and enterprise segments."

"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," he added.

Fixed exchange

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, 2005, this represents a price of $41.86 per share of Macromedia common stock. Upon the close of the transaction, Macromedia stockholders will own approximately 18 per cent of the combined company on a pro forma basis.

In the combined company, Chizen will continue as chief executive officer and Shantanu Narayen will remain president and chief operating officer. Stephen Elop, president and chief executive officer of Macromedia, will join Adobe as president of worldwide field operations. Murray Demo will remain executive vice president and chief financial officer. Dr John Warnock and Dr. Charles Geschke will remain as co-chairmen of the Board of Directors of the combined company and Rob Burgess, chairman of the Macromedia Board of Directors, will join the Adobe Board.

"Both Macromedia and Adobe are passionate about creating and enabling great experiences across a wide range of devices and operating systems," said Stephen Elop, president and chief executive officer of Macromedia. "Our combined teams will be a powerful force for innovation around cutting-edge platforms for delivering content and applications."

Intergration

The two companies are developing integration plans that build on the cultural similarities and the best business and product development practices from each company. The companies will make additional details and information about the acquisition available at Adobe's web site.

"While we anticipate the integration team will identify opportunities for cost savings by the time the acquisition closes, the primary motivation for the two companies’ joining is to continue to expand and grow our business into new markets," said Chizen.

The acquisition, which is expected to close this autumn, is subject to customary closing conditions, including approval by the stockholders of both companies and regulatory approvals. The transaction will be accounted for under purchase accounting rules.

Due to the absence at this time of estimates of the acquisition-related restructuring costs and the allocation of the purchase price between goodwill, in-process R&D, other intangibles and equity-based compensation expenses related to SFAS 123R, Adobe is currently unable to provide GAAP estimates on future earnings.

The transaction is currently expected to be break-even to slightly accretive to earnings in the first twelve months after closing on a non-GAAP basis. The company’s target of break even-to-slightly accretive to earnings on a non-GAAP basis assumes no adverse impact from the loss of deferred revenue in the first twelve months following the close due to purchase accounting.

Stock repurchase program

Adobe also announced its Board of Directors has approved a post-acquisition stock repurchase program of $1 billion. "After a review of the combined companies' financial position, our Board concluded that the repurchase program is consistent with our overall commitment to deliver value to our stockholders," Chizen added.

The repurchase program is in addition to the Adobe’s existing stock repurchase programs and is expected to commence following the completion of the acquisition. The repurchases will be funded from available working capital.

Conference call

The management teams of both companies will host a financial analyst and investor conference call today at 8am ET. The call can be accessed at 888-278-5324 (US) or 706-643-3100 (outside US) with conference call ID #5643249. A live webcast of the call will also be provided at http://www.adobe.com/ADBE and http://www.macromedia.com/MACR. For those unable to listen to the live conference call, a telephone replay will be available at 800-642-1687 (US) or 706-645-9291 (outside US) with conference call ID #5643249. The telephone replay will be available beginning April 18, 2005 at 9:00 a.m. ET through April 20, 2005 at 12:59 p.m. ET. A webcast archive will also be available on each company’s investor relations Web site.

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