Anticipated acquisition by Adobe Inc of Macromedia Inc

Affected market: Software

No. ME/1811/05

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views assessment and decision.

The OFT's decision on reference under section 33 given on 16 November 2005. Full text published 9 December 2005.

Square brackets indicate information replaced by a range at the parties' request.

PARTIES

Adobe Systems Inc. (Adobe) focuses on software for desktop publishing ('DTP') such as the design and editing of printed material intended for publication. It is perhaps best known for its Portable Document Format (PDF) technology. More generally, it produces a range of products which enable customers to create, manage and deliver visually rich content.

Macromedia Inc. (Macromedia) centres its activities on the World Wide Web and its key software products are in this area. It is best known for 'Flash', an application development tool for the creation of rich Internet applications and content. Generally, it provides software that enables the development of internet solutions. Macromedia's UK turnover for the year ended 31 March 2005 amounted to [<£70] million.

TRANSACTION

Adobe intends to indirectly acquire Macromedia via its wholly-owned subsidiary Avner Acquisition Sub Inc. Under the terms of an agreement entered into on 17 April 2005, Avner and Macromedia will merge, after which Avner will cease to exist and Macromedia will become a wholly-owned subsidiary of Adobe. The transaction is valued at approximately US$3.4 billion.

The Antitrust Division of the Department of Justice (DoJ) has announced its clearance decision with regard to this transaction on 14 October 2005. The Spanish Competition Authority has cleared the merger on 10 November 2005. The transaction is currently also being investigated by the competition authorities in Germany and Portugal.

The OFT's extended 40-working-day administrative timetable expired on 7 November 2005.

JURISDICTION

As a result of this transaction Adobe and Macromedia will cease to be distinct. The parties overlap in the supply of various computer software products. On the basis of information provided from the parties, the share of supply test in section 23 of the Enterprise Act 2002 (the Act) appears to be met in respect of drawing & illustration software (with a combined UK share of supply of [60-70] per cent in 2004). The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The vast majority of third parties were unconcerned about this transaction. Many considered that existing competition between the parties was limited and that their ability to compete dynamically with other players would be enhanced  because of increased interoperability between the parties' software tools post-merger. 

ASSESSMENT

This transaction brings together two important international players in the WDD, D&I and DI product segments. However, in relation to the D&I and DI segments, it does not appear that this merger will result in a loss of competition to any material degree. In the DI segment, the parties' products are differentiated in terms of their functionality to the extent that customers often buy both products to meet their specific needs. In relation to the D&I segment, Macromedia discontinued development of its Freehand product in 2001 since when its effectiveness as a competitor has substantially diminished.
 
In the WDD segment, the evidence also suggests that static competition between the parties pre-merger has been limited in that their products are again differentiated and there has only been limited customer switching between them. The parties will continue to face more significant competition from Microsoft in particular, which has expanded and enhanced its product range in this segment. There is also evidence to suggest that the parties are constrained to some extent by their own earlier software versions. In addition, no concerns have been raised at a suite level.

In relation to all segments, the vast majority of third parties raised no concerns. The limited concerns that were raised were found not to be substantiated.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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