Shares of Adobe Systems Inc soared in heavy trading on Thursday on a report that Microsoft chief executirve officer Steve Ballmer discussed a possible buyout of the company.
A report posted in the “Bits” blog of the New York Times said Ballmer recently met with Adobe CEO Shantanu Narayen to talk about Apple Inc’s control of the cellphone market and how Microsoft Corp and Adobe could work together to fend off the iPhone maker.
It was in this context that a possible buyout of Adobe by Microsoft came up, according to the Times. Microsoft had no comment.
In a statement, Adobe said it shares “millions of customers around the world” with Microsoft, and “the CEOs of the two companies do meet from time to time. However, we do not publicly comment on the timing or topics of their private meetings.”
Adobe., based in San Jose, California, makes software, such as Photoshop and the Flash technology used for Web videos and games. The company has been in a long-standing feud with Apple over Flash, which Apple bans from mobile devices including iPad and the iPhone.
An Adobe acquisition would be a huge one for Redmond, Washington-based Microsoft, whose last big purchase was in 2007 when it bought aQuantive Inc for US$6 billion. A proposed deal to buy Yahoo Inc the following year fell apart when Microsoft withdrew a US$47.5 billion bid. Adobe’s market cap is close to US$15 billion.
Gleacher & Co analyst Yun Kim said a potential buyer would be “great” for Adobe, which is looking to grow its annual revenue to US$5 billion in the next couple of years. It had revenue of about US$3 billion last year.
“Their business is not going as well as people thought,” he said.
However, how a deal would benefit Microsoft is less clear, Kim added.
It would only make sense if Microsoft could use Adobe’s business to put itself in a better position in the online advertising market, where Google dominates.
“If they can’t there is no reason to buy,” Kim said.
Even if a deal were to be hashed out, regulatory concern over the companies’ overlapping products, such as Flash and Microsoft’s Silverlight, could prevent it from going through.
Other analysts were skeptical, too.
“I don’t think there is an acquisition by any means,” Trip Chowdry of Global Equities Research said, calling it “wishful thinking” on the part of investors.
Instead, Chowdry thinks the meeting centered around Flash and Silverlight.
“Adobe is insisting Microsoft abandon Silverlight and get on the Flash bandwagon,” he said. “Then together they can challenge Apple.”
It’s also not clear how an acquisition would benefit Microsoft’s mobile business. The first smartphones running Microsoft’s Windows Phone 7 operating system, which are set to launch on Monday, won’t have Flash.
Sasa Zorovic of Janney Capital Markets said while he wouldn’t call a deal impossible, when it comes to Microsoft’s priorities, he “could think of a few above Adobe.”
Adobe ended the session up nearly 12 percent at US$28.69, with trading volume more than six times the average. The shares were briefly halted earlier in the afternoon after they hit as high as US$30.
In after-hours trading, the stock slipped US$0.14 to US$28.55. Microsoft ended trading up a dime at US$24.53.
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