In a surprise move, privately held Quark Inc has revealed it is holding acquisition talks with Adobe Systems Inc. Quark, the Denver, Colorado-based page layout applications company that’s been struggling to find a new direction over the last few years, yesterday made public a letter it had sent to Adobe on August 18. The letter outlined its plans to take a significant interest in Adobe at a premium to today’s market price for Adobe common stock. The letter requested a meeting with Adobe management. But Quark’s proposal was rejected by Adobe three days later. Tim Gill, chairman and founder of Quark, says he will continue to pursue the transaction. The combination…would create considerable value and benefits through cost-savings and cross marketing opportunities he said. In a breathtaking show of arrogance, Quark CEO Fred Ebrahimi wrote in his letter to Adobe CEO John Warnock that, as the proposed combination might face regulatory hurdles, Quark would commit to divest, to one or more third parties, Adobe’s K-2 and PageMaker products…and consider divesting Adobe’s FrameMaker products, as well as any other product which would present regulatory issues. Both Quark and Adobe have faced problems shifting the focus of their products from Apple Macintosh to Microsoft Windows-based systems, and are continuing to make the transition. Although it’s been offering Windows version of QuarkXpress for years, Quark still sells six copies of the Mac version for every four copies of the Windows version sold. The turning point should be next year. Ironically, Adobe’s PageMaker has done better on Windows, but is generally viewed as the weaker product. Adobe’s Illustrator and Photoshop are also strongest on Macintosh, although the emphasis of development is all towards Windows, and Adobe now generates two-thirds of its revenues from Windows software. Quark’s attempts to move into Photoshop territory with such products as Xposure and QuarkImmedia, which it once hoped would account for at least half of its revenues, have not been distinguished. Still, Quark’s profit margins are rumored to be very high, some says as much as 50% of revenues, and the acquisition of Adobe could be it’s long-awaited move to go public. Adobe recently said that it would cut up to 300 staff in an attempt to reduce costs and warned of a disappointing third quarter. Adobe shares closed at $24.56 on Tuesday, before Quark’s disclosure was made.
