Published: April 18, 2005, 7:13 AM PDT

By Matt Hines

Staff Writer, CNET News.com

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update Desktop publishing specialist Adobe Systems is buying multimedia software maker Macromedia in a $3.4 billion deal geared toward building a multimedia powerhouse.

The all-stock deal should create a better-stocked source of tools for building and distributing multimedia content across a range of operating systems and devices, the companies said Monday. They stressed that the merger would allow them to expand more rapidly into the market for audio and video applications for use in handhelds and other gadgets.

In a conference call, Bruce Chizen, Adobe`s chief executive officer, said that the buyout creates a more robust company capable of delivering new technology into a number of emerging markets.

CEO Bruce Chizen sheds light on why Adobe`s products continue to command top dollar while other desktop software prices plummet.``This acquisition strengthens Adobe`s mission of helping people and organizations communicate better,`` Chizen said. ``Whether it is documents, images, the Web, TV or new wireless and other non-PC devices, the methods we use to access this information continue to evolve.``

Adobe is best known for its PDF, or Portable Document Format, technology for presenting text files online. Macromedia`s flagship product is the Flash animation software.

Chizen said that the combined entity would be able to serve a wider audience than either company currently reaches, delivering new tools and services to content developers as the multimedia software sector evolves.

``The formats and standards governing communications methodologies are rapidly changing, and the creators of this information are challenged with how they cost-effectively create, deliver and manage that information,`` Chizen said.

In an interview with CNET News.com in February, Chizen talked about Adobe`s shift toward providing software for big companies and the shadows cast by software makers Microsoft and Apple Computer.

``If you just look at the number of government agencies around the world that already encourage the use of PDF and accept it as a de facto standard, it`s pretty hard for me to see how Microsoft`s going to come in and just unseat all those workflows,`` he said at the time. ``But they are Microsoft and they do have $40 billion in revenue.``

Under the terms of the deal, Macromedia`s shareholders will receive 0.69 share of Adobe`s stock, which will be valued at $41.86, based on the shares` closing price of $60.66 on Friday, for each share of Macromedia stock. The deal represents a roughly 25 percent improvement for Macromedia shareholders, based on the $33.45 closing price of the multimedia company`s stock on Friday.

In the combined company, Chizen will remain Adobe`s CEO, and Shantanu Narayen will retain his position as president and chief operating officer. Macromedia`s president and CEO, Stephen Elop, will join Adobe with the title of president of worldwide field operations. Rob Burgess, chairman of Macromedia`s board of directors, will join Adobe`s board.

Elop, who has been an executive with Macromedia since 1998, said the merger would allow the combined company to expand its reach into new areas of multimedia authoring, with a growing emphasis on bringing his company`s Flash graphics presentation format into new devices. Along with added resources, the executive said, Adobe will provide Macromedia with a range of potential customers.

``By focusing on more complete solutions that utilize our platform, and by interacting on an enterprise footing with our largest customers, we have been able to expand Macromedia from being not only a supplier of great software but also a strategic vendor to a growing number of customers,`` Elop said. ``It makes sense to do this today because we are doing well.``

Adobe`s financial team said that based on a number of similarities between the two companies, they would expect some cost savings once the companies are combined, but they did not supply any further specifics. They did say that the combined entity will be ``built on Adobe`s infrastructure.``

In conjunction with the deal, Adobe announced plans to repurchase $1 billion in stock after the Macromedia acquisition is completed. The transaction is expected to close later this year.

Also in combination with the acquisition announcement, Adobe reported that its second-quarter earnings and revenue would achieve the high end of its previous guidance, based on strong demand for its flagship Acrobat desktop publishing software. In March, Adobe announced earnings-per-share estimates of between 51 cents and 55 cents per share, on revenue of between $475 million and $495 million.

Macromedia said that it expects to exceed its own revenue guidance, saying it expects to come in above the $108 million to $113 million projection that it previously estimated for its fiscal fourth quarter, which ended March 31.