The Art of Adobe's Deal
Adobe System's (ADBE) acquisition of Macromedia made a lot of sense in the abstract.
Investors will get their first glimpse of how well the deal is working Wednesday afternoon, when Adobe reports its first-quarter results.
It's not that Wall Street seems terribly nervous that things have gone sour in the little more than three months since the acquisition, but that investors want an update on how the two software makers are meshing.
"This clearly brings their business to a much greater scale," says Darren Chervitz, research director at Jacob Asset Management, which is long Adobe. "It will be interesting to see how that is playing out."The near-term impact is likely to be more than $100 million in incremental sales in the first quarter and an assortment of merger-related charges. Longer term, the acquisition has the potential to juice sales of Adobe's suite of programs for creative professionals and to give it a leg up in the fast-growing market for Web video creation and delivery. On the whole, investors seem sanguine about the acquisition. Although Adobe's shares have traded off in recent weeks, the company's stock has risen 3% since Adobe completed the merger and is up about 9% over the last year. Indeed, investors seem to be focusing on the potential upside of the Macromedia deal than on any possible problems. With the recent appreciation in Adobe's stock, it's now trading at a relatively pricey 25 times fiscal 2007 earnings. "I don't think there's a burning question" about Adobe or how the integration with Macromedia is going, says Tony Ursillo, a buy-side analyst at Loomis Sayles, which is long Adobe. "I'm just looking for confirmation that the combination is working and the company feels good about the numbers going forward."
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