Aldus-Adobe Merger Back On Track -- But Value Of Deal To Aldus Shareholders Is Trimmed; Altsys Wins Freehand Rights

Aldus and Adobe Systems, a proposed wedding of two significant computer-software players that was threatened almost from their engagement date of March 15, now appears to be back on track.

But it took a $114 million reduction in value to Aldus shareholders to help avoid an annulment.

Aldus and Adobe today said Aldus shareholders will receive one share of Adobe stock for each Aldus share; in the March 15 announcement, the deal was for 1.15 Adobe shares. That slashes the value of the deal from $525 million to $411 million, based on Adobe's price today of $30.50.

That was only half of the news. A major impediment to the nuptials between Seattle-based Aldus and Mountain View, Calif.-based Adobe was a small company in Richardson, Tex., named Altsys Corp.

Altsys sued the principals April 8, saying Aldus' agreement to license technology from Altsys to help run its FreeHand software programs contained a no-compete agreement. The merger would violate that pact because Adobe has a competing program, Illustrator.

Both Adobe and Aldus stock performed poorly since March. A key concern was the Federal Trade Commission's inquiry about whether the deal was anti-competitive.

Today, Aldus said that when the current licensing agreement expires next July, it will turn over to Altsys all rights to FreeHand, an illustration and design program. In return, Altsys agreed to drop its suit.

"We believe that this is a major step toward concluding the merger, and we think concluding the merger is in the best interests of the shareholders," Stevens said.

The stock market agreed. Aldus stock roared out of the blocks today, climbing $3.75 to $30.25 in late trading. Adobe slipped 87.5 cents a share to $30.50.

"We had thought there was a 65 percent chance of the deal happening," said Scott McAdams, securities analyst at the Ragen MacKenzie brokerage in Seattle. "Now it's probably 90 percent."

One tool, not always perfect, to measure such deals is price-to-sales ratio, McAdams said. Software businesses often trade in a range of 2 to 4. Although this one works out to 1.8, at the low end, McAdams said: "Overall, it's a pretty good price."

McAdams also said there still was a small chance the FTC could veto the deal. But he expected shareholders to accept the lower terms, if only because many of the shares are held by arbitrageurs. Arbitrageurs commonly buy up shares between the announcement of a deal and its completion to profit from the relatively small increase in price that occurs during that period.

Aldus and Adobe also said they hope to set shareholders' meetings to vote on the merger before the end of August.

In addition, Adobe agreed with the trade commission not to complete the merger until after July 22 - an addition of one week.