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December 4, 2005

Adobe clinches Macromedia deal

Adobe Systems Inc said Friday it had cleared the final regulatory hurdle to buy rival Macromedia Inc for $3.4bn. The deal closed on Saturday.

By CBR Staff Writer

Macromedia shareholders will receive 1.38 shares of Adobe stock for each Macromedia share, which values the deal at roughly $3.8bn.

The two Web-authoring and desktop publishing software makers first announced the takeover in April. At the time, Abobe chief executive Bruce Chizen said the deal would create cost savings.

We should expect reductions of duplicate costs and functions, though cost leverage is hardly the main motivation of the merger, said Merrill Lynch analyst Jay Vleeschhouwer in a research note issued Friday.

We expect that there will be several examples of using packaging and promotions during 2006, with more technical-level integration to occur further down the road.

Macromedia positions Adobe deeper into the web development and mobile device development markets, Vleeschhouwer said.

Adobe’s strength lies in editing and distributing static content such as text, photos, or graphics. Macromedia is a leader in animation tools for creating Web graphics. It is best known for its Flash program.

Adobe needs to realize $40m in annual savings to make the deal accretive, which is quite achievable, said UBS Investment Research analyst Benjamin Reitzes, in a Friday research note. New bundled products might hit the market by mid-2006, earlier than some investors expect, with the first being for creative professionals, Reitzes said.

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Merrill Lynch expects a substantial re-acceleration of the combined company in 2007. The next version of Acrobat is likely within the next 12 to 15 months and what would be Creative Suite 3 during 2007, Vleeschhouwer said. Possible updates to the Macromedia designer and developer products, which most recently were updated just a few months ago, also are expected, Vleeschhouwer said.

Adobe, make of the Acroboate document-sharing software, said it would discuss the combined company’s fiscal 2006 outlook during its next earnings call, December 15.

Vleeschhouwer said he expects earnings for fiscal year 2007 to be $1.42 a share on $2.98bn in revenue. However, he has not yet factored in multiple ways in which Adobe will be able to combine and leverage the various complementary applications in the new ‘creative pro’, ‘knowledge worker’ and ‘enterprise and developer’ segments, he said.

The deal had previously been approved by shareholders and by the US Justice Department after an antitrust investigation. Some European jurisdictions have also given it the green light.

Wall Street welcomed news of the closure of the deal. On Friday, Adobe stock closed 3.2% higher to $34.97, while Macromedia shares rose 3.7% to $48.26.

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