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This could get nasty. Adobe, the down-at-heel developer of publishing software, is in play, following an unwelcome bid from its smaller rival Quark. In an opportunistic move, Quark has gone public after its “friendly” deal to acquire a “significant” slug of Adobe stock at a substantial premium was rejected by its bigger rival. In a terse statement dated August 21, (and released ever so helpfully by Quark), Adobe said: "Adobe is not interested in pursuing discussions as we continue to focus on the exciting opportunities available to our company, stockholders, employees, and customers." But the gloves will come off if privately held Quark carries out its threat to go hostile. It says it may appeal directly over the heads of the Adobe board to Adobe shareholders. But the company adds it would “strongly prefer to negotiate a transaction supported by the Adobe board”. Quark, which competes head-on with Adobe Pagemaker with its own design lay-out package QuarkXPress, is in effect launching a break-up bid for Adobe. If successful, the company says it will overcome anti-trust concerns by disposing Adobe’s Pagemaker and K2 product lines. It would also consider selling Adobe’s Framemaker software. Effectively this would leave the company with control of the professional DTP market through ownership of Adobe Photoshop, the de facto image manipulation software standard for graphics designers, and Adobe Illustrator, a market leading drawing package, also aimed at professional designers. Big ambitions. But does Quark have the firepower to force through a deal? The Denver-based company has yet to show the colour of its money – it says merely that has cash in the bank and that it is in discussions with investment bankers. It will need more than this to convince Adobe shareholders. The company will also need to quickly spell out the premium it proposes to offer. Immediately prior to the publication of Quark’s rebuffed offer, Adobe’s shares were languishing at a 52-week low, and less than half its March price of more than $50. Earlier this month, the company warned that it would have to lay-off 300 employees –- 10 per cent of the payroll -–following two consecutive quarters of losses. Adobe also warned that it may post losses in the third quarter. US analysts polled by First Call now expect Adobe to produce Q3 sales of between $220 million and $225 million, compared with sales of $230 million for the same period last year. Adobe blames losses on a sales slump in recession-hit Japan and slower sales of Mac-based software. The company is trying to overcome this by pumping up Windows-based sales. But it is fighting Quark for space a market that is at risk of long-term – albeit gentle –decline. Adobe and Quark may dominate the paper-based publishing and graphics software sector, but they carry nothing like the same cachet in the Web arena - where the explosive growth is. In light of this, Quark’s proposal to consolidate the paper-based graphics sector under its wing looks defensive. The company could hardly do any worse than Adobe’s tired management team. And maybe, a whole heap better. ®

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