War of words rages over Quark's plan to buy Adobe

Adobe Systems has reacted angrily to a proposed takeover bid by Quark which was made public yesterday. Adobe has confirmed the receipt of what it dubbed 'unsolicited letters' from Quark. 'Such letters failed to state any material terms that would constitute a firm and bona fide offer, including price,' Adobe said. Quark seems undeterred by the hostility and is determined to press ahead with the 'very exciting and compelling business opportunity'.

Adobe Systems has reacted angrily to a proposed takeover bid by Quark which was made public yesterday.

Adobe has confirmed the receipt of what it dubbed "unsolicited letters" from Quark. "Such letters failed to state any material terms that would constitute a firm and bona fide offer, including price," Adobe said.

Quark yesterday disclosed that it hoped to buy Adobe at a cash price in excess of the vendor's current market value, the company said. Quark had earlier published the contents of a trio of letters -- two from Quark and one from Adobe -- that outlined such a plan.

In the first letter, dated August 18, Quark CEO Fred Ebrahimi told John Warnock, Adobe's co-chairman, and CEO and Charles Geschke, Adobe co-chairman and president, of Quark's proposal and requested an August 24 meeting with Adobe management. In the letter, Ebrahimi described the Quark proposal as a "very exciting and compelling business opportunity," adding, "If we are to be successful, speed is of the essence."

However, the deal doesn't come without strings. Ebrahimi said in the letter that due to certain unspecified regulatory issues, a potential Quark/Adobe combo would need to divest itself of Adobe's K-2 and PageMaker desktop publishing software, selling the products off to third party buyers. K-2 is the code name for an upcoming PageMaker replacement product.

Quark would also consider offloading Adobe's FrameMaker as well, should that help speed regulatory approval of the deal, Ebrahimi added in the letter.

Privately-held Quark specialises in publishing software, with its flagship product QuarkXpress used widely for page layout by newspapers and magazines and similar to Adobe's PageMaker and K-2 products. Quark evidently fears that given the overlap between their respective products, a tie-up between the two companies could attract the attention of antitrust watchdogs.

Warnock and Geschke, in an August 21 missive to Ebrahimi, replied tersely to Quark's advances. "We are not interested in pursuing discussions as we continue to focus on the exciting opportunities available to our company, stockholders, employees, and customers," the letter stated.

But Quark and Ebrahimi were undeterred, firing off a second letter dated yesterday urging that the Adobe board reconsider its stance. In the letter, Ebrahimi said that Quark is "disappointed and surprised" by Adobe's response which he characterised as being "mistaken."

While stressing Quark's intention to engage in "direct friendly discussions" with Adobe, he added that his company chose to publicise the discussions to plea its case further. "Although we reserve the right to proceed with an offer directly to your stockholders, we strongly prefer to negotiate a transaction supported by the Adobe Board," Ebrahimi said in the letter.

He added that Quark considers Adobe "obligated to enter into a dialogue with us regarding the combination of Quark and Adobe before it can enter into any alternative transaction or agree to any lock-ups, break-up fees or impediments to a transaction with Quark."

Adobe didn't agree. "Quark has itself acknowledged the significant anti-competitive effects of any transaction, which Adobe believes would be harmful to its customers," the company said in its statement issued late last night.

Adobe recently announced that its third quarter earnings for fiscal 1998, due to end August 28, may fall below analysts' expectations because of poor sales in Japan and a product delay. The financials are scheduled for release on September 24. The company also revealed that a cost reduction program aimed at boosting long-term growth would result in the layoffs of up to 300 of its staff.

The move to acquire part or all of Adobe is fueled by Quark's strategy of expanding its operations into new markets. The company put US$200 million aside last year as an acquisition war chest. Earlier this year, Quark announced it would buy Coris Inc., a subsidiary of R.R. Donnelley and Sons, in order to create content management software for future Quark client/server applications.

Companies publicising acquisition plans prematurely is nothing new, but such efforts have met with mixed results.

IBM Corp. in 1995 successfully acquired Lotus Development after initial hesitancy on the part of Lotus.

But when Computer Associates International chose the public forum to win over Computer Sciences Corp. (CSC) earlier this year, the move unleashed weeks of vitriol and mudslinging between the two parties before CA withdrew its proposal.

Quark, based in Denver, Colorado, can be reached via the Internet at http://www.quark.com/. Adobe, based in San Jose, California, can be reached via the Internet at http://www.adobe.com/.

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