Adobe says no to buyout deal, but Quark still pressing

One day after Quark publicized its proposal to buy all or part of Adobe at a still-undisclosed price, there was little discernible movement. Quark said it has received several phone calls from shareholders eager to learn more details about the plan. But it still hasn't heard from Adobe.

"We really would like to discuss this with Adobe," Quark founder and Chairman Tim Gill said. "We hope they are discussing this with their board."

News of the proposal boosted Adobe shares more than 12 percent Wednesday. That was a dramatic change of direction for Adobe's stock, which has lost more than half its value in the past year. The company has disappointed Wall Street and recently warned that earnings would come up short in its third quarter.

Gill said Quark has resources both "externally and internally" to buy Adobe, a company about four times its size.

"The recent changes in Adobe's market value put it in a range where it makes a lot of sense," Gill said, adding that he has no plans to leave Denver if the merger goes through, because he couldn't bear to be so far from the snowboarding slopes.

Adobe: We're not interested
But Adobe Chairman Charles Geschke said the company is not for sale, standing by Adobe's rejection of the offer in an Aug. 21 letter to Quark.

"I was perplexed," Geschke said of the Aug. 18 letter he received from Quark first mentioning the plan. "Any letter like that, that purports to be friendly without somebody picking up the phone, seems hostile to me."

Geschke said Quark's plan was not a bid, or even a proposal, because it didn't include a price or comply with SEC rules.

Sources inside Adobe called the offer "flaky," suggesting Quark is stirring things up to divert attention from upcoming Adobe products that could compete with it. The company has a poison pill designed to ward off hostile takeovers when a company buys more than 20 percent of its stock.

Quark is interested in Adobe to bolster its share of the graphics software market. While Quark owns the high-end market for such software with its flagship QuarkXpress product, Adobe has a strong lead in the lower-end market.

Adobe also has a wider variety of products and is coming out with a product next year to rival Quark in the high end. Quark said it would consider divesting Adobe's K-2 and PageMaker products to alleviate antitrust concerns.

Still, swallowing such a large company would be a challenge. Analysts estimate Quark's revenues were about $200 million in 1997, not even a quarter of Adobe's reported $912 million.

In an unusual twist, Quark Wednesday sent out a press release saying that its second-quarter earnings were especially strong.

Because Quark is a privately held company, it's not required to release earnings, and it has not done so before. The glowing release, like Quark's letters to Adobe, did not contain any concrete numbers, and stated only percentage increases. It said Quark's revenues for the first half of the year set an all-time high and jumped 26 percent from 1997.

Though the release seemed to be designed to drum up support for the proposed merger, Gill said it had been planned even before the Adobe overture. "That's something we need to get into the habit of doing," Gill said.

Analysts raise questions
Still, some analysts have questioned where Quark will get the funding to buy Adobe. "The thing I find very interesting is Quark is a much smaller company," said Forrester Research Inc. analyst Don DePalma. "I wonder where the money is going to come from."

DePalma said the situation reminded him of a cartoon he saw a few years ago featuring a bedraggled customer talking to a loan officer at a savings and loan. When the officer asked the customer what was wrong, he replied that DuPont had accepted his takeover bid.

But Craig Cline, vice president of program development for Seybold Seminars (which is owned by Ziff-Davis, publisher of ZDNN), said industry watchers shouldn't be so quick to downplay the potential merger.

"When I first heard about it, I burst out laughing and said, 'You've got to be kidding,' " Cline said. But upon further examination, Cline believes Quark is serious. He pointed to a Quark's March launch of a startup designed to create financial software.

"If they have the money for something that's as tangential to their business as accounting software, their pockets appear to be deep," he said.