What if Microsoft Bought Adobe?

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A rumored meeting between the heads of Microsoft and Adobe sent the technology and financial press into a frenzy Thursday afternoon, fueling speculation that the larger firm might buy out the smaller one.

Initial reports sprang from the New York Times Bits Blog, which reported that Microsoft (NASDAQ: MSFT) CEO Steve Ballmer recently met with Adobe (NASDAQ: ADBE) CEO Shantanu Narayen for more than an hour.

According to the Timespost, the paper learned of the meeting and some of its content from parties who were “employees and consultants to the companies who were involved in the discussions that took place or familiar with their organization.”

On the agenda, those individuals said, was a discussion of how the two companies could partner to counter the competitive threat to both of them from Apple (NASDAQ: AAPL) in the wireless market. Apple CEO Steve Jobs has refused to allow Adobe’s Flash technology on its portable devices.

“A possible acquisition of Adobe by Microsoft were among the options,” the Timespost said.

A Microsoft spokesperson declined to comment regarding the rumors, while an Adobe spokesperson did not immediately return a call seeking comment.

If the rumor is to be believed, there would be a certain irony in the alliance because the two companies have been fierce competitors in recent years in several technology and product areas — primarily Adobe’s Flash streaming media technology and Microsoft’s Silverlight.

Several analysts had differing takes on what an acquisition of Adobe by Microsoft might accomplish. However, they all said such a deal has a lot going against it.

“It was much more likely that Microsoft asked Adobe to work with them on Windows Phone 7 and, eventually, on Windows 8 for Tablets,” Tim Bajarin, principal analyst for Creative Strategies, told InternetNews.com.

An acquisition or even a partnership might also draw a skeptical eye from antitrust regulators, who will continue to oversee Microsoft’s behavior in the marketplace until next year.

“Microsoft remains under antitrust watch, so getting [an acquisition of that size] through regulators would be really difficult,” Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com.

Despite his own skepticism that a merger or buyout might be in the works, Rob Helm, managing vice president of research at Directions on Microsoft, described a combination in glowing terms.

“I think it’d be a match made in heaven … from a portfolio view, where there’s an overlap [between the two companies’ products], there’s a clear winner,” Helm told InternetNews.com. “I think you’ll see some real synergy if the two tie the knot,” he added.

For instance, in the area of content and document management, Adobe’s PDF format owns the file format space over Microsoft’s XPS. “Combining PDF with SharePoint (Microsoft’s collaboration server) would fit together quite nicely,” Helm said.

Figuring out what to do with Silverlight versus Flash may be less clear cut.

Microsoft has not made any multi-billion dollar acquisitions since it dropped its bid to buy Yahooin 2008.

In after-hours trading, Adobe lost $0.09 to $28.60, while Microsoft remained flat at $24.53.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.