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Macromedia merges with Allaire, beats estimates

The company announces a $360 million merger with Allaire, expanding its reach from Web authoring software to back-end application development software.

Macromedia announced Tuesday a $360 million merger with Allaire, expanding the company's reach from Web authoring software to back-end application development software.

Macromedia also reported pro forma earnings Tuesday that beat analyst expectations by 2 cents a share.

Gartner analyst Mark Driver says The planned acquisition of Allaire offers a strategy for Macromedia to expand beyond its traditional markets.

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The merger with Allaire will allow San Francisco-based Macromedia to expand its audience from Web authors using its products, such as Flash and Dreamweaver, to Web developers who build sites using server software such as Allaire's ColdFusion and Jrun.

In a conference call with analysts and investors, Macromedia Chief Executive Rob Burgess said the merger will make Macromedia a one-stop shop for Web professionals.

"In short, we think we've got the product lineup here that will fulfill that dream of Web professionals: to author both the look of a Web site and the application behind it," Burgess said.

Analysts were bullish on the long-term possibilities of the merger.

"Allaire provides functionality wherein you can embed code within your page, whereas Macromedia focuses toward building the site graphically," said Sasa Zorozic, an analyst with Robertson Stephens. "The two products combined lets you do both things at the same time. It makes sense."

Macromedia and Allaire have worked as partners in the past. Burgess said the merger will allow the companies to create a stronger, combined product that will encompass the entire Web development market.

Under the terms of the agreement, Macromedia will exchange 0.2 shares of its stock and $3 in cash for each Allaire share.

In its earnings report Tuesday, Macromedia said it earned $16.2 million, or 29 cents per share, a 97 percent increase from its profit of $8.2 million, or 15 cents per share, in the year-earlier period. Analysts polled by First Call expected the company to earn 25 cents per share.

Revenue for the third quarter, which ended Dec. 31, 2000, was $103.3 million, a 61 percent increase from $64.3 million during the same period last year.

"I'm delighted about the ability of the company to deliver strong earnings in uncertain times," Burgess said.

Although the company had a strong quarter and shipped new versions of Dreamweaver 4, Dreamweaver UltraDev 4 and Fireworks 4, management offered conservative future estimates because of "soft economic conditions." The company predicted flat revenue and pro forma earnings for its software business for the fourth quarter of fiscal 2001.

Macromedia said it will no longer include the financial results of Shockwave.com with its own earnings after Shockwave's merger with AtomFilms.

Beginning 2002, Macromedia will report its earnings in conjunction with Allaire. Revenues in fiscal year 2002 are expected to be approximately $630 million, or approximately 60 percent growth over expected fiscal year 2001 revenue for Macromedia's software business. Pro forma combined earnings for fiscal year 2002 are expected to be approximately $1.70 per share.