SAN FRANCISCO - Adobe Systems announced plans Monday to buy rival software firm Macromedia for about 3.4 billion dollars, a move aiming to propel the group into digital markets that include mobile phones.
Under the terms of the deal, which has been approved by both boards of directors, Macromedia stockholders will receive 0.69 shares of Adobe common stock for every share of Macromedia common stock in a tax-free exchange.
Adobe, know for its Photoshop photo editing program and Acrobat document software, will expand its offerings with Macromedia, which develops design tools for building "rich media," or interactive applications.
The San Francisco-based Macromedia claims the top spot in the market for website design, with about one-third of the market, followed by Microsoft. It also produces the Flash and Shockwave software used in many games and Internet applications.
Adobe said it is aiming at "an industry-defining technology platform" with the combination of its PDF (portable document format) software and Macromedia's flagship Flash multimedia platform.
"This combination is all about growth and it would certainly disappoint me if we can't grow faster than other software companies," said Adobe chief executive Bruce Chizen on a conference call with analysts and investors. He will become CEO of the combined group.
Adobe expects to see some cost savings as part of the deal, but Chizen declined to to offer any specifics.
With Macromedia, Adobe is reaching an estimated three million Web developers and can expect the size of its current market of graphic artists and marketing executives to expand by 60 percent, said Jamie Friedman, analyst at Fulcrum Global Partners.
"In the end, it's the same idea ... to get those products on a computer or a set-top box or a gaming console or a cell phone," he said. "The companies have grown up together."
Bringing the two companies together was a desire to fuel expansion into new markets, rather than cost savings, said Shatanu Narayen, Adobe's president. Combined, the merger partners hope to dominate the potentially hot market for providing multimedia software for cell phones and other mobile devices.
"For us the real reason to do the deal was strategic," Narayen said.
Macromedia's Dreamweaver program is the leading software for website design, ahead of a rival offering from Microsoft, and its Flash animation software is a favorite of designers and other creative professionals. Adobe hopes to sell those products to the same customers who buy its graphics and publishing programs.
"Macromedia has been pushing the digital age for a number of years; Adobe wants to get into that space," said Bola Rotibi, a senior applications analyst at Ovum, a British-based market research group. "They will be a stronger competitor for Microsoft."
"We believe the transaction is strategic long-term for both companies, given that they both are known for their strong focus on creative professionals," said Smith Barney analyst Tom Berquist.
"The value proposition is that users will be able to create and present a broader range of information and applications through more formats including the Internet, documents, audio and video."
Adobe shares fell 5.89 or nearly 10 percent to 54.77 while Macromedia rose 3.27 or 9.8 percent to 36.72 in closing trade.

04/18/2005 21:18 GMT