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Adobe will pay $3.4bn in stock, for which it will acquire products such as FreeHand, Dreamweaver, Fireworks and Flash which are the main competitors to some of its own portfolio.

Adobe sees the buyout as crucial in its bid to create wholly integrated software and to make PDF the dominant (if it is not already) document format - the addition of Flash to its portfolio, gives it the most dominant multimedia file format for the Web. Flash also has a strong and growing presence on mobile phones.

'Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of compelling content and applications - from documents and images to audio and video,' said Bruce Chizen, Adobe CEO. 'By combining our powerful development, authoring and collaboration software - along with the complementary functionality of PDF and Flash - Adobe has the opportunity to bring this vision to life with an industry-defining technology platform.'

Significantly, Adobe will be in a much stronger

Nonetheless, despite Chizen's determination to expand its $100mn document server business, established applications such as Photoshop and Illustrator generate its largest chunk of profit and should only benefit from the addition of Macromedia technologies.

However the future of some applications must now be in doubt. Adobe's GoLive Web authoring software may lose out in favour of Macromedia's Dreamweaver while Freehand will be looking for a second reprieve. (The software was almost acquired by Adobe in 1994 when Adobe bought Aldus; however licensing issues meant that it instead went to Macromedia). Fireworks, Macromedia's bitmap graphics app, may also be threatened.

The two companies are tight-lipped on the subject.

'While we anticipate the integration team will identify opportunities for cost savings by the time the acquisition closes, the primary motivation for the two companies' joining is to continue to expand and grow our business into new markets,' Chizen said.

The acquisition is expected to be completed in the fall. Chizen will continue as CEO while Stephen Elop, president and CEO of Macromedia, will join Adobe as president of Worldwide Field Operations.

Information on the deal will be posted and updated at www.adobe.com/aboutadobe/invrelations