Hostile take-over?
... from MacWeek
Quark's "friendly" takeover bid
By John Batteiger (john_batteiger@macweek.com)
Quark Inc.'s stunning takeover bid for archrival Adobe Systems Inc. sent shock waves through the computer industry on Wednesday.
The offer, while quickly rebuffed, comes at a time when Adobe is struggling to reorganize its operations, lay off staff and deal with falling revenue. And the deal seems far from over.
Quark said late Tuesday it was willing to pay a premium to acquire all or part of Adobe, a company more than four times its size. Quark said it tendered a buyout offer in a letter sent a letter to Adobe executives on Aug. 18. Adobe responded three days later, saying it was "not interested in pursuing discussions," prompting Quark to lay its cards on the table Tuesday.
Adobe's stock has been battered after company officials warned earlier this month of a slight loss or break-even results in the company's third fiscal quarter, which ends Friday. Adobe also announced a shakeup of senior management and said it plans to cut 300 jobs, or 10 percent of its work force.
Shares of Adobe closed Tuesday at 24.56, down from its 52-week high of 53.13. By noon Wednesday (Eastern time) Adobe's stock was up slightly at $26.38 per share.
Quark is a privately held company and does not trade stock publicly. On Wednesday the company announced that revenue for the first six months of 1998 set an all-time high for the company and increased 26 percent over the same period in 1997. Second-quarter revenue rose 23 percent over second-quarter 1997, Quark said.
Adobe is blaming its financial problems on the economic turmoil wracking Asia as well as disappointing sales of its Illustrator and PageMaker software lines. The company now expects third-quarter revenue of $220 million to $225 million, well below both Wall Street's expectations and the software maker's year-ago revenue of $230 million.
"Bottom line: Slit their throat while they're down," said Chris LeTocq, an analyst with Dataquest.
That's what Adobe's chief rival is apparently looking to do. Quark published the contents of its Aug. 18 letter to Adobe urging the company's board to "seriously reconsider" an acquisition proposal.
Quark said Adobe's management had "summarily rejected" its proposal to meet.
Analysts estimate Quark's annual revenues at $200 million while Adobe had nearly $912 million in sales during its last fiscal year, ended November 1997.
But in a prepared statement, Quark founder and chairman Tim Gill said the proposed combination "would create considerable value and benefits through the synergies, cost-savings and cross-marketing opportunities realizable only through such a transaction."
Quark, which said it wanted to pursue a "friendly" takeover, did not detail how much of a premium it was willing to pay. Gill said Quark was "pursuing this transaction with every intent to be fair to Adobe employees, stockholders and customers."
However, LeTocq said, the surprise offer "definitely fits the definition of hostile. The next question is what Adobe has done to protect itself."
That's still unclear, but Adobe said late Tuesday night that it was not interested in Quark's offer. In a brief statement, Adobe said Quark's letters had failed to present any "material terms that would constitute a firm and bona fide offer, including price."
However, the company may find itself under pressure from institutional investors. Ten of the 15 analysts who follow Adobe have lowered their rating to hold; only five have the company at a buy rating.
"By doing this, Quark removes its competition at the high end of the marketplace," LeTocq said.
Quark said it would sell Adobe's K-2 and PageMaker software programs to allay any antitrust concerns the proposal could raise with federal regulators.
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