San Jose (CA) - Adobe announced Monday that it entered an agreement to acquire Macromedia for about $3.4 billion in stock. The companies will combine their software into integrated solutions and hope to expand their reach into mobile and enterprise markets.

The largest purchase in the firm’s history will provide Adobe with a broad set of software that is not only believed to strengthen its position in targeting print and online document publishers, graphic designers, video editors and animation developers, but also defend the company against increasing competition especially from Microsoft.

"Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of compelling content and applications - from documents and images to audio and video," said Bruce Chizen, chief executive officer of Adobe. "By combining our powerful development, authoring and collaboration software - along with the complementary functionality of PDF and Flash - Adobe has the opportunity to bring this vision to life with an industry-defining technology platform."

Despite some redundancy and competing products - think of PDF and FlashPaper, or GoLive and Dreamweaver - Macromedia clearly enhances Adobe’s publishing and developer portfolio with products such as Flash, Director, ColdFusion, Authorware, and RoboHelp among others. In a statement released by the two firms, Adobe says it will leverage combined software solutions to target enterprise and mobile segments - a strategy that has been actively pursued by Macromedia for about 18 months with the enterprise communication and presentation platform Breeze as well as Flash Lite, the mobile version of the firm’s animation package.

Under the terms of the agreement, 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. Based on Adobe’s and Macromedia’s closing prices on, April 15, 2005, this represents a price of $41.86 per share of Macromedia common stock. Upon the close of the transaction, Macromedia stockholders will own about 18 percent of the combined company. According to these terms, Adobe values Macromedia at 44 times its recently reported yearly earnings and about 7.5 times its revenue.

In the combined company, Chizen will continue as chief executive officer of Adobe. Stephen Elop, president and chief executive officer of Macromedia, will join Adobe as president of worldwide field operations. John Warnock and Dr. Charles Geschke will remain as co-chairmen of the Board of Directors of the combined company and Rob Burgess, chairman of the Macromedia Board of Directors, will join the Adobe Board.

The acquisition is subject to closing conditions including approval by the stockholders of both companies and regulatory approvals. Adobe and Macromedia expect to finalize the merger by Fall of this year.