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Adobe - A House of Mud?

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September 21, 2009 – Comments (2) | RELATED TICKERS: ADBE , OMTR.DL

Adobe Systems, Inc. (Nasdaq: ADBE) is acquiring Omniture, Inc. (Nasdaq: OMTR) for $21.50 per share in cash.

When I first read the Foolish news, my initial reaction was why? Not why would Adobe buy Omniture, why would Adobe pay $21.50 for a company worth about $2.00?

Admittedly I wasn’t certain that I had Omniture valued at all, but upon checking I found that I did indeed have an Omniture worksheet, and that yes, I had place a reasonable value estimate on the company stock at slightly more than $2.00.

I looked through my worksheet which is based on the company’s latest SEC 10-K filing for year ending December 31, 2008, and found that the company has a Tangible Book Value of $1.22, Shareholder Equity of $8.65, and generated $0.26 in Free Cash Flow.

Why was Adobe paying $21.50 per share for Omniture?

I looked a bit more and found that the company generated 1.70% Return on Equity and less than 7% Return on Invested Capital. In addition, almost 67% of the company’s Total Assets were made up of Goodwill and Intangibles.

Why was Adobe paying $21.50 per share for Omniture?

I read through the transcript of the conference call with the analysts that follow Adobe and then I read through Omniture’s Schedule 14D-9 filing. And still I had no clue why Adobe would pay $21.50 per share for Omniture.

I even scanned through the CAPS site to see what was being said, and there was nothing. It was like nobody was paying attention.

And then out of nowhere, the light came on. At last, I had my answer.

Adobe is paying $21.50 per share for Omniture because they can. Which I guess is as good a reason as any.

Wax

2 Comments – Post Your Own

#1) On September 21, 2009 at 10:06 PM, hud500 (55.04) wrote:

Great post.

Omniture is a good product. It's sold at a premium. How they can only be making only 1.7% ROE boggles my mind.

My company uses it, and I'm sure there is a lot of scope to increase sales. At the same time, there is a very low barrier to entry and quite a few other players.

I agree, they've completely overpaid. If they want to diversify, they could have built the same application for a fraction of the cost. I'm turning off my ADBE green thumb.

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#2) On September 22, 2009 at 3:43 AM, wax (96.73) wrote:

hud;

Thanx for the comments.

Omniture doubled sales between in 2008, and in one of the SEC filings I read that Omniture says they have about 5000 customers. Maybe Adobe is thinking they can capitalize on Omniture's customer base. I just don't see how this purchase is going to add to Adobe's earning out of the box.

Wax

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