Adobe to buy Macromedia

Adobe is to buy Macromedia in a stock transaction valued at $3.4bn (£1.8bn) that will see the formation of a content-creation behemoth.

The deal, announced early on Monday morning, is expected to close in the fourth quarter of 2005, subject to shareholder approval. Bruce Chizen will continue as Adobe's chief executive and Shantanu Narayen will remain president and chief operating officer. Macromedia chief executive Stephen Elop will join Adobe as president of worldwide field operations.

"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," said Chizen in a statement.

In a hint that some products could be scrapped as a result of the merged, Chizen noted that "cost savings" are likely to be made at the company, though he added that the motivation for the deal was to continue to expand and grow business into new markets.

The main areas of overlap between the companies' products are in graphics, where Adobe's Photoshop and Illustrator are the market leaders ahead of Macromedia's competing Fireworks and Freehand. For Web design, Macromedia has the established DreamWeaver against Adobe's more recent GoLive product.

Initial reaction from users was negative: "It's a monopoly," said one art director who works at a London-based creative agency. "They could create great software, but where will the competition come from?" He added that he thinks Macromedia is "already wielding too much power in not making Flash open source".