ACQUISITION OF ADOBE SYSTEMS BY MICROSOFT CORP.
DEB SAHOO, MBA, ROSS SCHOOL OF BUSINESS, UNIVERSITY OF MICHIGAN, ANN ARBOR...
INDUSTRYNEWS
2
Industry Buzz
TABLEOFCONTENTS
Executive Summary
Financial Statements of Buyer
Financial Statements of Target
Discounted Cash Flow Valuat...
EXECUTIVE SUMMARY
4
EXECUTIVESUMMARY
Target OverviewBuyer Overview
•Total deal value: $55, 147 MM
•Total Enterprise Value/ 2011P EBITDA: 30.9x...
TARGET OVERVIEW
6
BACKGROUNDANDTARGETOVERVIEW
Products and ServicesCompany Overview
Adobe Systems Incorporated (Adobe) offers a range of
bus...
FINANCIAL STATEMENTS OF BUYER
8
FINANCIALSTATEMENTSOFBUYER
5 Year Income Statement of Microsoft Corp.
9
All figures in millions of U.S. Dollar, except per...
FINANCIALSTATEMENTSOFBUYER
5 Year Balance Sheet of Microsoft Corp.
10
All figures in millions of U.S. Dollar, except per s...
FINANCIALSTATEMENTSOFBUYER
5 Year Cash Flow Statement of Microsoft Corp.
11
All figures in millions of U.S. Dollar, except...
FINANCIAL STATEMENTS OF TARGET
12
FINANCIALSTATEMENTSOFTARGET
5 Year Income Statement of Adobe Systems Inc.
13
All figures in millions of U.S. Dollar, excep...
FINANCIALSTATEMENTSOFTARGET
5 Year Balance Sheet of Adobe Systems Inc.
14
All figures in millions of U.S. Dollar, except p...
FINANCIALSTATEMENTSOFTARGET
5 Year Cash Flow Statement of Adobe Systems Inc.
15
All figures in millions of U.S. Dollar, ex...
DISCOUNTED CASH FLOW VALUATION OF TARGET
16
DISCOUNTEDCASHFLOWVALUATIONOFTARGET
Free Cash Flow Projection
17
Free Cash Flow Projection FY Ending December 30 CAGR
2010...
DISCOUNTEDCASHFLOWVALUATIONOFTARGET
Valuation Sensitivity Analysis
18
DCF Valuation (2011-2015): EBITDA Multiple Method
To...
COMPARABLE COMPANY VALUATION OF TARGET
19
COMPARABLECOMPANYVALUATIONOFTARGET
Industry Comparables
20
COMPARABLECOMPANYVALUATIONOFTARGET
Comparable Company Key Financial Statistics
21
Capitalization Analysis
LTM as of 21-Apr...
COMPARABLECOMPANYVALUATIONOFTARGET
Comparable Company Valuation Range
22
Adobe Systems Inc. Key Financial Metrics
Net Debt...
PRECEDENT TRANSACTIONS VALUATION OF TARGET
23
PRECEDENTTRANSACTIONVALUATIONOFTARGET
Precedent Transactions Analysis
24
Precedent Transactions
Deal
Year Name Industry Ti...
VALUATION SUMMARY
25
VALUATIONSUMMARY
Target Valuation Summary
26
5% -7% WACC 14x -16x Exit Multiple
Low $27,870.1 $27,531.4
Range $2,534.9 $3,...
FINANCIAL PROJECTIONS OF BUYER AND TARGET
27
FINANCIALPROJECTIONSOFBUYERANDTARGET
Income Statement Projection of Microsoft Corp.
28
FY Ended December 30 FY Ending Dece...
FINANCIALPROJECTIONSOFBUYERANDTARGET
Income Statement Projection of Adobe Systems Inc.
29
FY Ended December 30 FY Ending D...
TRANSACTION ANALYSIS
30
TRANSACTIONANALYSIS
Sources and Uses of Funds
31
Current
Price
$33.48 $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00
Sou...
TRANSACTIONANALYSIS
Pro Forma Balance Sheet
32
Transaction Value Per Share $41.00 Microsoft Corp. Adobe Systems Inc. Adjus...
TRANSACTIONANALYSIS
Pro Forma Income Statement
33
FY Ended December 30 FY Ending December 30 CAGR
2008A 2009A 2010A 2011E ...
TRANSACTIONANALYSIS
Purchase Price Allocation and Accounting Adjustments
34
Purchase Price Calculation
Common Equity Consi...
TRANSACTIONANALYSIS
Transaction Premium and Multiple Analysis
35
Adobe Systems Inc. Transaction Prices Per Adobe Systems I...
EPS ACCRETION/DILUTION ANALYSIS
36
EPSACCRETION/DILUTIONANALYSIS
EPS Accretion/Dilution – All Stock Deal
37
Standalone All Stock
Microsoft Corp.
Transaction ...
EPSACCRETION/DILUTIONANALYSIS
EPS Accretion/Dilution – 60% Stock + 40% Cash Deal
38
Standalone
Microsoft Corp.
Transaction...
EPSACCRETION/DILUTIONANALYSIS
EPS Accretion/Dilution – All Cash Deal
39
Standalone
Microsoft Corp.
Transaction Value Per S...
EPSACCRETION/DILUTIONANALYSIS
EPS Accretion/Dilution Sensitivity Analysis
40
Accretion/Dilution without Synergy Accretion/...
PROFITABILITY CONTRIBUTION ANALYSIS
41
PROFITABILITYCONTRIBUTIONANALYSIS
Profitability Contribution by Buyer and Target
42
Microsoft Corp. Adobe Systems Inc. Com...
43
Prepared
by
Deb Sahoo
MBA, Ross School of Business
University of Michigan, Ann Arbor
Upcoming SlideShare
Loading in …5
×

03. merger of microsoft and adobe (deb sahoo)

344 views

Published on

  • Be the first to comment

03. merger of microsoft and adobe (deb sahoo)

  1. 1. ACQUISITION OF ADOBE SYSTEMS BY MICROSOFT CORP. DEB SAHOO, MBA, ROSS SCHOOL OF BUSINESS, UNIVERSITY OF MICHIGAN, ANN ARBOR April 25, 2011
  2. 2. INDUSTRYNEWS 2 Industry Buzz
  3. 3. TABLEOFCONTENTS Executive Summary Financial Statements of Buyer Financial Statements of Target Discounted Cash Flow Valuation of Target Comparable Company Valuation of Target Financial Projections of Buyer and Target Transaction Analysis 4 8 12 16 19 27 30 3 Target Overview 6 EPS Accretion/Dilution Analysis 36 Profitability Contribution Analysis 41 Precedent Transactions Valuation of Target 23 Valuation Summary 25
  4. 4. EXECUTIVE SUMMARY 4
  5. 5. EXECUTIVESUMMARY Target OverviewBuyer Overview •Total deal value: $55, 147 MM •Total Enterprise Value/ 2011P EBITDA: 30.9x •Total Enterprise Value/ 2011P Revenue: 12.8x •FY 2011P P/E: 18.3x •Offer Price per Share: $40.00 •Cash Consideration: 40% •Premium: 19.5% •EPS Accretion without synergy: -7.9% •% Shares owned by Microsoft shareholders: 86.9% •Pretax synergy required to breakeven: $2,743 MM Valuation •Company: Microsoft Corp. •Headquarter: Redmond, Washington •CEO: Steven Anthony Ballmer •Number of Employees: 89,000 •Develops, manufactures, licenses, and supports a wide range of software products and services •Offers operating systems for personal computers, servers, and intelligentdevices; server applications, high performance computing applications; software development tools, video games •Designs and sells hardware, including the Xbox 360 gaming console , the Zune digital music device and Microsoft personal computer hardware products Key Financials of Buyer and Target 5 Buyer • Ticker: MSFT • Stock Price: $25.52 • 5 Year avg. Sales Growth: 9.70% • Market Cap: $215.2B • Number of Basic Shares: 8,430 MM • 2010 EBITDA: $27,363 MM • Total Enterprise Value: $184 B Target • Ticker: ADBE • Stock Price: $33.48 • 5 Year avg. Sales Growth: 15.6% • Market Cap: $16.763 B • Number of Basic Shares: 1,310 MM • 2010 EBITDA: $1,309 MM • Total Enterprise Value: $43 B •Company: Adobe Systems Inc. •Headquarter: San Jose, California •CEO: Shantanu Narayen •Number of Employees: 9,117 •Offers a line of creative, business, Web and mobile software and services used by creative professionals, knowledge workers, developers, marketers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems
  6. 6. TARGET OVERVIEW 6
  7. 7. BACKGROUNDANDTARGETOVERVIEW Products and ServicesCompany Overview Adobe Systems Incorporated (Adobe) offers a range of business, Web and mobile software and services used by professionals, knowledge workers, developers, marketers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content and experiences across multiple operating systems, devices and media Distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs) and original equipment manufacturers (OEMs) Its software runs on personal computers (PC) and server- based computers, as well as various non-PC and mobile devices Has operations in the Americas, Europe, Middle East and Africa (EMEA) and Asia Stock PerformanceIndustry Comparables 7 • Acrobat X Pro •Authorware •BrowserLab •Creative Suite 5.5 •Dreamweaver CS5.5 •Flash Media Playback •FrameMaker Server 10 •Adobe Genesis™ •Illustrator® CS5 •Photoshop CS5 •Shockwave® Player •Adobe SiteSearch •Stock Price: $33.48 •52 Week High: $36.35 •52 Week Low: $23.45 •Stock Beta: 1.59 •FY 2010 EPS: $1.83
  8. 8. FINANCIAL STATEMENTS OF BUYER 8
  9. 9. FINANCIALSTATEMENTSOFBUYER 5 Year Income Statement of Microsoft Corp. 9 All figures in millions of U.S. Dollar, except per share items 30-Jun-10 30-Jun-09 30-Jun-08 29-Jun-07 30-Jun-06 Sales/Revenue 62,484.0 57,553.0 60,420.0 51,122.0 44,282.0 Cost of Goods Sold (COGS) incl. D&A 12,395.0 12,155.0 11,598.0 10,693.0 7,650.0 COGS excluding D&A 9,722.0 9,593.0 9,542.0 9,253.0 6,660.0 Depreciation & Amortization Expense 2,673.0 2,562.0 2,056.0 1,440.0 990.0 Depreciation 1,800.0 1,700.0 1,400.0 1,170.0 863.0 Amortization of Intangibles 873.0 862.0 656.0 270.0 127.0 Gross Income 50,089.0 45,398.0 48,822.0 40,429.0 36,632.0 SG&A Expense 25,399.0 25,306.0 24,530.0 21,394.0 18,840.0 Research & Development 8,714.0 9,010.0 8,164.0 7,121.0 6,584.0 Other SG&A 16,685.0 16,296.0 16,366.0 14,273.0 12,256.0 EBIT (Operating Income) 24,690.0 20,092.0 24,292.0 19,035.0 17,792.0 Nonoperating Income (Expense) - Net 1,275.0 900.0 1,408.0 1,969.0 1,980.0 Nonoperating Interest Income 843.0 706.0 888.0 1,319.0 1,510.0 Other Income (Expense) 432.0 194.0 520.0 650.0 470.0 Interest Expense 151.0 0.0 0.0 0.0 0.0 Unusual Expense (Income) - Net 801.0 1,171.0 1,886.0 869.0 1,728.0 Pretax Income 25,013.0 19,821.0 23,814.0 20,135.0 18,044.0 Income Taxes 6,253.0 5,252.0 6,133.0 6,036.0 5,663.0 Equity in Earnings of Affiliates 0.0 0.0 0.0 -34.0 218.0 Net Income 18,760.0 14,569.0 17,681.0 14,065.0 12,599.0 EBITDA 27,363.0 22,654.0 26,348.0 20,475.0 18,782.0 EBIT 24,690.0 20,092.0 24,292.0 19,035.0 17,792.0 Depreciation & Amortization Expense 2,673.0 2,562.0 2,056.0 1,440.0 990.0
  10. 10. FINANCIALSTATEMENTSOFBUYER 5 Year Balance Sheet of Microsoft Corp. 10 All figures in millions of U.S. Dollar, except per share items 30-Jun-10 30-Jun-09 30-Jun-08 29-Jun-07 30-Jun-06 Assets Cash & ST Investments 36,788.0 31,447.0 23,662.0 23,411.0 34,161.0 Total Accounts Receivable 13,014.0 11,192.0 13,589.0 11,338.0 9,316.0 Inventories 740.0 717.0 985.0 1,127.0 1,478.0 Other Current Assets 5,134.0 5,924.0 5,006.0 4,292.0 4,055.0 Total Current Assets 55,676.0 49,280.0 43,242.0 40,168.0 49,010.0 Net Property, Plant & Equipment 7,630.0 7,535.0 6,242.0 4,350.0 3,044.0 Total Investments and Advances 7,754.0 4,933.0 6,588.0 10,117.0 9,232.0 Intangible Assets 13,552.0 14,262.0 14,081.0 5,638.0 4,405.0 Other Assets 1,501.0 1,599.0 1,691.0 1,509.0 1,295.0 Total Assets 86,113.0 77,609.0 71,844.0 61,782.0 66,986.0 Liabilities & Shareholders' Equity ST Debt & Curr. Portion LT Debt 1,000.0 2,000.0 0.0 0.0 0.0 Accounts Payable 4,025.0 3,324.0 4,034.0 3,247.0 2,909.0 Income Tax Payable 1,074.0 725.0 3,248.0 1,040.0 1,557.0 Other Current Liabilities 20,048.0 20,985.0 22,604.0 19,467.0 17,976.0 Total Current Liabilities 26,147.0 27,034.0 29,886.0 23,754.0 22,442.0 Long-Term Debt 4,939.0 3,746.0 0.0 0.0 0.0 Deferred Taxes 229.0 -279.0 -949.0 -1,389.0 -2,611.0 Other Liabilities 8,623.0 7,550.0 6,621.0 8,320.0 7,051.0 Total Liabilities 39,938.0 38,051.0 35,558.0 30,685.0 26,882.0 Common Equity 46,175.0 39,558.0 36,286.0 31,097.0 40,104.0 Common Stock Par/Carry Value 62,856.0 62,382.0 62,849.0 60,557.0 59,005.0 Retained Earnings -17,736.0 -23,793.0 -27,703.0 -31,114.0 -20,130.0 Cumulative Translation Adjustment/Unrealized For. Exch. Gain -176.0 30.0 270.0 149.0 64.0 Unrealized Gain/Loss Marketable Securities 1,231.0 939.0 870.0 1,505.0 1,165.0 Total Shareholders' Equity 46,175.0 39,558.0 36,286.0 31,097.0 40,104.0 Liabilities & Shareholders' Equity 86,113.0 77,609.0 71,844.0 61,782.0 66,986.0
  11. 11. FINANCIALSTATEMENTSOFBUYER 5 Year Cash Flow Statement of Microsoft Corp. 11 All figures in millions of U.S. Dollar, except per share items 30-Jun-10 30-Jun-09 30-Jun-08 29-Jun-07 30-Jun-06 Operating Activities Net Income before Extraordinaries 18,760.0 14,569.0 17,681.0 14,065.0 12,599.0 Depreciation, Depletion & Amortization 2,673.0 2,562.0 2,056.0 1,440.0 903.0 Depreciation and Depletion 1,800.0 1,700.0 1,400.0 1,170.0 863.0 Amortization of Intangible Assets 873.0 862.0 656.0 270.0 40.0 Deferred Taxes & Investment Tax Credit -220.0 762.0 935.0 421.0 219.0 Other Funds 2,199.0 2,339.0 787.0 1,181.0 1,356.0 Funds from Operations 23,412.0 20,232.0 21,459.0 17,107.0 15,077.0 Changes in Working Capital 661.0 -1,195.0 153.0 689.0 -673.0 Receivables -2,238.0 2,215.0 -1,569.0 -1,764.0 -2,071.0 Other Assets/Liabilities 2,899.0 -3,410.0 1,722.0 2,453.0 1,398.0 Net Operating Cash Flow 24,073.0 19,037.0 21,612.0 17,796.0 14,404.0 Investing Activities Capital Expenditures 1,977.0 3,119.0 3,182.0 2,264.0 1,578.0 Net Assets from Acquisitions -245.0 -868.0 -8,053.0 -1,150.0 -649.0 Purchase/Sale of Investments -7,590.0 -11,783.0 6,648.0 9,503.0 10,230.0 Other Funds -1,502.0 0.0 0.0 0.0 0.0 Net Investing Cash Flow -11,314.0 -15,770.0 -4,587.0 6,089.0 8,003.0 Financing Activities Cash Dividends Paid -4,578.0 -4,468.0 -4,015.0 -3,805.0 -3,545.0 Change in Capital Stock -8,958.0 -8,774.0 -9,039.0 -20,793.0 -17,106.0 Issuance/Reduction of Debt, Net 190.0 5,746.0 0.0 0.0 0.0 Other Funds 55.0 33.0 120.0 54.0 89.0 Net Financing Cash Flow -13,291.0 -7,463.0 -12,934.0 -24,544.0 -20,562.0 Exchange Rate Effect -39.0 -67.0 137.0 56.0 18.0 Net Change in Cash -571.0 -4,263.0 4,228.0 -603.0 1,863.0
  12. 12. FINANCIAL STATEMENTS OF TARGET 12
  13. 13. FINANCIALSTATEMENTSOFTARGET 5 Year Income Statement of Adobe Systems Inc. 13 All figures in millions of U.S. Dollar, except per share items 30-Nov-10 30-Nov-09 28-Nov-08 30-Nov-07 30-Nov-06 Sales/Revenue 3,800.0 2,945.9 3,579.9 3,157.9 2,575.3 Cost of Goods Sold (COGS) incl. D&A 504.2 395.0 433.5 432.6 462.8 COGS excluding D&A 211.5 112.5 163.2 117.1 155.0 Depreciation & Amortization Expense 292.7 282.4 270.3 315.5 307.8 Depreciation 107.5 95.9 83.3 73.2 67.7 Amortization of Intangibles 185.2 186.5 187.0 242.3 240.1 Gross Income 3,295.8 2,550.9 3,146.4 2,725.3 2,112.5 SG&A Expense 2,279.4 1,819.1 2,086.1 1,867.2 1,541.5 Research & Development 680.3 565.1 662.1 613.2 539.7 Other SG&A 1,599.1 1,254.0 1,424.0 1,253.9 1,001.8 EBIT (Operating Income) 1,016.3 731.8 1,060.3 858.1 571.0 Nonoperating Income (Expense) - Net 13.3 22.4 60.8 89.9 128.4 Nonoperating Interest Income 21.9 35.0 57.6 92.8 62.5 Other Income (Expense) -8.6 -12.6 3.2 -2.9 66.0 Interest Expense 57.0 3.4 10.0 0.3 0.0 Unusual Expense (Income) - Net 29.6 49.3 32.6 0.6 19.7 Financial Assets Impairment -- -- -- -- -- Reorganization and Restructure Expense 23.3 41.3 32.1 0.6 19.7 Goodwill Write Off -- -- -- -- -- Unrealized Investment Loss (Gain) 6.3 8.0 0.6 -- -- Other Unusual Expense 0.0 0.0 0.0 0.0 0.0 Pretax Income 943.2 701.5 1,078.5 947.2 679.7 Income Taxes 168.5 315.0 206.7 223.4 173.9 Consolidated Net Income 774.7 386.5 871.8 723.8 505.8 Net Income 774.7 386.5 871.8 723.8 505.8 EBITDA 1,309.1 1,014.2 1,330.6 1,173.6 878.8 EBIT 1,016.3 731.8 1,060.3 858.1 571.0 Depreciation & Amortization Expense 292.7 282.4 270.3 315.5 307.8
  14. 14. FINANCIALSTATEMENTSOFTARGET 5 Year Balance Sheet of Adobe Systems Inc. 14 All figures in millions of U.S. Dollar, except per share items 30-Nov-10 30-Nov-09 28-Nov-08 30-Nov-07 30-Nov-06 Assets Cash & ST Investments 2,468.0 1,904.5 2,019.2 1,993.9 2,280.9 Total Accounts Receivable 554.3 410.9 467.2 362.8 408.7 Other Current Assets 193.7 158.3 248.7 216.3 194.9 Total Current Assets 3,216.1 2,473.6 2,735.1 2,573.0 2,884.5 Net Property, Plant & Equipment 448.9 388.1 313.0 289.8 227.2 Total Investments and Advances 246.0 287.1 307.3 274.1 173.1 Long-Term Note Receivable -- 0.0 0.0 0.0 2.4 Intangible Assets 4,170.6 4,106.3 2,440.3 2,550.7 2,655.9 Other Assets 59.6 27.1 25.8 26.1 19.5 Total Assets 8,141.1 7,282.2 5,821.6 5,713.7 5,962.5 Liabilities & Shareholders' Equity ST Debt & Curr. Portion LT Debt 8.8 0.0 0.0 0.0 0.0 Accounts Payable 52.4 58.9 55.8 41.7 55.0 Income Tax Payable 53.7 46.6 27.1 215.1 178.4 Other Current Liabilities 953.1 739.0 679.6 595.6 443.9 Total Current Liabilities 1,068.1 844.6 762.6 852.4 677.3 Long-Term Debt 1,513.7 1,000.0 350.0 0.0 0.0 Provision for Risks & Charges 164.7 223.5 123.2 0.0 0.0 Deferred Taxes 103.1 252.5 117.3 148.9 70.7 Other Liabilities 99.2 71.1 58.1 62.3 62.6 Total Liabilities 2,948.8 2,391.7 1,411.2 1,063.7 810.7 Common Equity 5,192.4 4,890.6 4,410.4 4,650.0 5,151.9 Total Shareholders' Equity 5,192.4 4,890.6 4,410.4 4,650.0 5,151.9 Liabilities & Shareholders' Equity 8,141.1 7,282.2 5,821.6 5,713.7 5,962.5
  15. 15. FINANCIALSTATEMENTSOFTARGET 5 Year Cash Flow Statement of Adobe Systems Inc. 15 All figures in millions of U.S. Dollar, except per share items 30-Nov-10 30-Nov-09 28-Nov-08 30-Nov-07 30-Nov-06 Operating Activities Net Income before Extraordinaries 774.7 386.5 871.8 723.8 505.8 Depreciation, Depletion & Amortization 292.7 282.4 270.3 315.5 307.8 Deferred Taxes & Investment Tax Credit -172.3 49.6 46.6 58.4 -4.3 Other Funds 240.5 216.0 218.3 269.8 171.7 Funds from Operations 1,135.6 934.6 1,406.9 1,367.5 981.1 Changes in Working Capital -22.6 183.2 -126.2 71.8 -53.8 Receivables -134.3 172.3 -153.4 -103.2 -112.8 Accounts Payable -10.1 -13.6 14.1 11.5 11.8 Income Taxes Payable -48.7 109.6 -57.7 61.4 27.2 Other Accruals 101.0 -61.8 10.4 61.5 -72.1 Other Assets/Liabilities 69.4 -23.3 60.3 40.6 92.1 Net Operating Cash Flow 1,113.0 1,117.8 1,280.7 1,439.3 927.2 Investing Activities Capital Expenditures 169.6 119.6 111.8 132.1 83.3 Net Assets from Acquisitions -193.3 -1,582.7 -4.3 -77.2 0.0 Sale of Fixed Assets & Businesses 32.2 0.0 0.0 13.0 0.0 Purchase/Sale of Investments -830.7 202.4 -189.3 360.9 -160.7 Other Funds 2.2 2.8 0.7 -81.3 439.1 Net Investing Cash Flow -1,159.3 -1,497.1 -304.7 83.3 195.2 Financing Activities Cash Dividends Paid 0.0 0.0 0.0 0.0 0.0 Change in Capital Stock -710.8 -170.4 -1,403.6 -1,435.4 -854.9 Issuance/Reduction of Debt, Net 479.1 636.1 350.0 0.0 0.0 Other Funds 16.4 12.0 32.0 85.1 80.2 Net Financing Cash Flow -215.3 477.7 -1,021.6 -1,350.4 -774.7 Exchange Rate Effect 12.0 14.7 -14.4 1.7 3.9 Net Change in Cash -249.6 113.0 -60.0 173.9 351.7
  16. 16. DISCOUNTED CASH FLOW VALUATION OF TARGET 16
  17. 17. DISCOUNTEDCASHFLOWVALUATIONOFTARGET Free Cash Flow Projection 17 Free Cash Flow Projection FY Ending December 30 CAGR 2010 2011 2012 2013 2014 2015 2011-2015 Revenue $3,800.0 $4,115.1 $4,564.4 $5,023.4 $5,073.6 $5,124.4 5.6% % Growth 29.0% 8.3% 10.9% 10.1% 1.0% 1.0% EBITDA 1,309.1 1,705.9 1,888.9 2,061.2 2,081.8 2,102.6 5.4% % Margin 34.5% 41.5% 41.4% 41.0% 41.0% 41.0% Less: Depreciation (107.5) (65.4) (64.0) (63.8) (64.4) (65.1) EBITA 1,201.6 1,640.5 1,824.9 1,997.4 2,017.4 2,037.5 5.6% Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Unlevered Net Income $901.2 $1,230.4 $1,368.7 $1,498.1 $1,513.0 $1,528.2 5.6% Plus: Depreciation 107.5 65.4 64.0 63.8 64.4 65.1 Less: Capital Expenditures (137.5) (133.9) (159.4) (175.6) (202.9) (205.0) Less: Change in Working Capital (9.5) 8.3 3.1 1.6 1.9 2.3 Free Cash Flow $861.7 $1,170.2 $1,276.4 $1,387.9 $1,376.4 $1,390.6 4.4% Net Debt ($954.2) FDSO 1,312.830
  18. 18. DISCOUNTEDCASHFLOWVALUATIONOFTARGET Valuation Sensitivity Analysis 18 DCF Valuation (2011-2015): EBITDA Multiple Method Total Enterprise Value Total Equity Value (1) Terminal EBITDA Multiple Terminal EBITDA Multiple 14.0x 15.0x 16.0x 14.0x 15.0x 16.0x Discount 5.0% $28,757.5 $30,405.0 $32,052.4 Discount 5.0% $29,711.7 $31,359.2 $33,006.6 Rate 6.0% $27,531.4 $29,102.7 $30,673.9 Rate 6.0% $28,485.6 $30,056.9 $31,628.1 (WACC) 7.0% $26,370.9 $27,870.1 $29,369.2 (WACC) 7.0% $27,325.1 $28,824.3 $30,323.4 Implied Perpetuity Growth Rate Price Per Share (2) Terminal EBITDA Multiple Terminal EBITDA Multiple 14.0x 15.0x 16.0x 14.0x 15.0x 16.0x Discount 5.0% 0.3% 0.6% 0.8% Discount 5.0% $22.6 $23.9 $25.1 Rate 6.0% 1.2% 1.5% 1.8% Rate 6.0% $21.7 $22.9 $24.1 (WACC) 7.0% 2.2% 2.5% 2.8% (WACC) 7.0% $20.8 $22.0 $23.1 DCF Valuation (2011-2015): Perpetuity Growth Method Total Enterprise Value Total Equity Value (1) Terminal Perpetuity Growth Rate Terminal Perpetuity Growth Rate 1.0% 1.5% 2.0% 1.0% 1.5% 2.0% Discount 5.0% $33,204.0 $37,289.8 $42,737.6 Discount 5.0% $34,158.2 $38,244.0 $43,691.8 Rate 6.0% $26,524.6 $28,972.3 $32,031.9 Rate 6.0% $27,478.8 $29,926.5 $32,986.1 (WACC) 7.0% $22,072.4 $23,679.7 $25,608.6 (WACC) 7.0% $23,026.6 $24,633.9 $26,562.8 Implied Terminal EBITDA Multiple Price Per Share (2) Terminal Perpetuity Growth Rate Terminal Perpetuity Growth Rate 1.0% 1.5% 2.0% 1.0% 1.5% 2.0% Discount 5.0% 16.7x 19.2x 22.5x Discount 5.0% $26.02 $29.13 $33.28 Rate 6.0% 13.4x 14.9x 16.9x Rate 6.0% $20.93 $22.80 $25.13 (WACC) 7.0% 11.1x 12.2x 13.5x (WACC) 7.0% $17.54 $18.76 $20.23
  19. 19. COMPARABLE COMPANY VALUATION OF TARGET 19
  20. 20. COMPARABLECOMPANYVALUATIONOFTARGET Industry Comparables 20
  21. 21. COMPARABLECOMPANYVALUATIONOFTARGET Comparable Company Key Financial Statistics 21 Capitalization Analysis LTM as of 21-Apr-2011 Diluted Cash Long Price Market Shares Equity Enterprise and ST Total Preferred Minority Total Term D/ Company Name Ticker (21-Apr-2011) Value Outstanding Value Value Investments Debt Equity Interest Assets Debt D+E Apple, Inc. AAPL 350.70 324,279.5 935.9 328,231.8 295,045.5 29,234.0 0.0 0.0 0.0 94,904.0 0.0 0.00x Microsoft Corp. MSFT 25.52 214,428.8 8,570.0 218,706.4 182,847.8 41,252.0 9,671.0 0.0 0.0 92,306.0 9,671.0 0.17x Autodesk, Inc. ADSK 44.88 10,228.2 234.2 10,510.9 8,953.9 1,274.3 0.0 0.0 0.0 2,696.9 0.0 0.00x Yahoo!, Inc. YHOO 16.85 22,063.6 1,364.6 22,993.7 19,285.8 2,884.1 68.0 0.0 38.3 14,885.1 61.0 0.01x Google, Inc. GOOG 525.10 169,206.6 323.3 169,739.1 137,696.6 34,975.0 3,465.0 0.0 0.0 57,586.0 0.0 0.07x Oracle Corp. ORCL 34.75 175,852.9 5,149.0 178,927.8 166,691.9 24,355.0 14,752.0 0.0 442.0 66,147.0 14,752.0 0.29x Mean 166.3 152,676.6 152,676.6 2,762.8 154,851.6 135,086.9 22,329.1 4,659.3 - 80.0 54,754.2 4,080.7 Median 39.8 172,529.8 172,529.8 1,150.3 174,333.4 152,194.3 26,794.5 1,766.5 - - 61,866.5 30.5 Margin Analysis LTM as of 21-Apr-2011 Company Name Ticker FY-1 FY0 LTM FY-1 FY0 LTM FY-1 FY0 LTM FY-1 FY0 LTM Apple, Inc. AAPL 39.6 39.3 39.1 26.7 28.1 29.0 28.4 29.7 30.6 19.3 21.5 22.4 Microsoft Corp. MSFT 78.9 80.2 78.4 34.9 39.5 39.6 39.4 43.8 43.5 25.3 30.0 30.8 Autodesk, Inc. ADSK 88.8 89.9 89.9 7.9 14.5 14.5 13.3 19.9 19.9 3.4 10.9 10.9 Yahoo!, Inc. YHOO 54.9 58.0 58.0 7.9 13.1 13.1 19.4 23.9 23.9 9.3 19.5 19.5 Google, Inc. GOOG 62.6 64.5 64.5 35.1 35.4 35.4 41.6 40.2 40.2 27.6 29.0 29.0 Oracle Corp. ORCL 72.0 71.2 68.3 36.8 36.7 34.4 45.3 45.1 42.3 24.1 22.9 22.4 Mean 66.1 67.2 66.3 24.9 27.9 27.7 31.2 33.8 33.4 18.2 22.3 22.5 Median 67.3 67.8 66.4 30.8 31.7 31.7 33.9 34.9 35.4 21.7 22.2 22.4 Gross Margin (%) EBIT Margin (%) EBITDA Margin (%) Net Margin (%) Valuation Analysis LTM as of 21-Apr-2011 Price to Price Market Enterprise Book to Company Name Ticker Value Value Sales EBITDA LTM FY1 FY2 Sales EBIT EBITDA Value Sales Apple, Inc. AAPL 324,279.5 295,045.5 87,451.0 26,774.0 16.72 14.31 12.41 3.4x 11.6x 11.0x 5.3x 3.8x Microsoft Corp. MSFT 214,428.8 182,847.8 66,690.0 28,987.0 10.86 10.03 9.26 2.7x 6.9x 6.3x 4.4x 3.3x Autodesk, Inc. ADSK 10,228.2 8,953.9 1,951.8 387.6 49.87 27.21 22.98 4.6x 31.7x 23.1x 6.3x 5.4x Yahoo!, Inc. YHOO 22,063.6 19,285.8 6,324.7 1,513.0 18.72 22.02 18.98 3.0x 23.2x 12.7x 1.8x 3.6x Google, Inc. GOOG 169,206.6 137,696.6 29,321.0 11,777.0 24.43 15.45 13.18 4.7x 13.3x 11.7x 3.6x 5.8x Oracle Corp. ORCL 175,852.9 166,691.9 34,353.0 14,518.0 23.01 15.92 14.55 4.9x 14.1x 11.5x 4.8x 5.2x Mean 152,676.6 135,086.9 37,681.9 13,992.8 23.9 17.5 15.2 3.9x 16.8x 12.7x 4.4x 4.5x Median 172,529.8 152,194.3 31,837.0 13,147.5 20.9 15.7 13.9 4.0x 13.7x 11.6x 4.6x 4.5x Low 10,228.2 8,953.9 1,951.8 387.6 10.9 10.0 9.3 2.7x 6.9x 6.3x 1.8x 3.3x High 324,279.5 295,045.5 87,451.0 28,987.0 49.9 27.2 23.0 4.9x 31.7x 23.1x 6.3x 5.8x Price / EPS Enterprise Value /
  22. 22. COMPARABLECOMPANYVALUATIONOFTARGET Comparable Company Valuation Range 22 Adobe Systems Inc. Key Financial Metrics Net Debt ($954.2) FDSO 1,312.830 Book Value of Share 4.0$ EPS (FY1) 2.2$ EPS(FY2) 2.4$ Sales 3,800.0$ EBIT 1,016.4$ EBITDA 1,309.1$ Mean Median Low High 22,704.9 23,953.1 9,118.6 - 32,870.8 50,209.5 45,029.2 28,785.1 - 78,115.1 48,670.0 44,303.2 29,604.1 - 73,458.0 14,757.2 15,126.5 10,418.7 - 18,438.8 17,091.6 13,919.4 7,043.9 - 32,249.1 16,658.1 15,168.4 8,257.7 - 30,241.2 Implied Total Enterprise Value Mean Median Low High 17.3 18.2 6.9 - 25.0 38.2 34.3 21.9 - 59.5 37.1 33.7 22.5 - 56.0 12.0 12.2 8.7 - 14.8 13.7 11.3 6.1 - 25.3 13.4 12.3 7.0 - 23.8 Implied Price per Share
  23. 23. PRECEDENT TRANSACTIONS VALUATION OF TARGET 23
  24. 24. PRECEDENTTRANSACTIONVALUATIONOFTARGET Precedent Transactions Analysis 24 Precedent Transactions Deal Year Name Industry Ticker Name Industry Ticker Enterprise Value EV/Revenue EV/EBITDA Premium 2009 Adobe Systems Software ADBE Omniture Software OMTR $1,800.0 4.6x 22.3x 45% 2009 IBM Corp. IT Services IBM SPSS Software SPSS $785.0 2.7x 18.0x 42% 2010 Intel Corp. Hardware INTC McAfee Software MFE $6,800.0 3.4x 16.1x 60% 2009 Intel Corp. Hardware INTC Wind River Software WIND $790.0 2.2x 21.0x 44% 2010 SAP AG Software SAP Sybase Inc. Software SYBS $5,800.0 4.5x 15.7x 56% Mean $3,195.0 3.5x 18.6x 49% Median $1,800.0 3.4x 18.0x 45% Low $785.0 2.2x 15.7x 42% High $6,800.0 4.6x 22.3x 60% Buyer Target Deal Details Adobe Systems Inc. Key Financial Metrics Net Debt ($954.2) FDSO 1,312.830 Revenue 3,800.0$ EBITDA 1,309.1$ Mean Median Low High Mean Median Low High 13,224.0 12,920.0 8,360.0 17,480.0 10.8 10.6 7.1 14.0 24,375.4 23,563.8 20,552.9 29,192.9 19.3 18.7 16.4 23.0 Implied Total Enterprise Value Implied Price per Share
  25. 25. VALUATION SUMMARY 25
  26. 26. VALUATIONSUMMARY Target Valuation Summary 26 5% -7% WACC 14x -16x Exit Multiple Low $27,870.1 $27,531.4 Range $2,534.9 $3,142.4 High $30,405.0 $30,673.9 DCF Analysis 2.2x -4.6x Revenue 15.7x -22.3x EBITDA $8,360.0 $20,552.9 $9,120.0 $8,640.1 $17,480.0 $29,192.9 Precedent Transactions 3.2x - 4.7x Revenue 11.02x - 14.1x EBITDA $12,160.0 $14,426.1 $5,700.0 $4,032.2 $17,860.0 $18,458.3 Comparable Companies
  27. 27. FINANCIAL PROJECTIONS OF BUYER AND TARGET 27
  28. 28. FINANCIALPROJECTIONSOFBUYERANDTARGET Income Statement Projection of Microsoft Corp. 28 FY Ended December 30 FY Ending December 30 CAGR 2008A 2009A 2010A 2011P 2012P 2013P 2014E 2015E 2011-2015 Total Revenue $60,420.0 $57,553.0 $62,484.0 $69,590.0 $74,123.0 $79,131.0 $84,477.4 $90,184.9 6.7% % Growth NA (4.7%) 8.6% 11.4% 6.5% 6.8% 6.8% 6.8% COGS 9,542.0 9,593.0 9,722.0 12,481.6 13,551.1 15,796.9 16,864.2 18,003.6 % of Sales 15.8% 16.7% 15.6% 17.9% 18.3% 20.0% 20.0% 20.0% Gross Profit $50,878.0 $47,960.0 $52,762.0 $57,108.4 $60,571.9 $63,334.1 $67,613.2 $72,181.3 6.0% % Margin 84.2% 83.3% 84.4% 82.1% 81.7% 80.0% 80.0% 80.0% SG&A 24,530.0 25,306.0 25,399.0 26,789.0 28,519.4 28,537.5 30,465.6 32,523.9 % of Sales 40.6% 44.0% 40.6% 38.5% 38.5% 36.1% 36.1% 36.1% EBITDA $26,348.0 $22,654.0 $27,363.0 $30,319.4 $32,052.5 $34,796.6 $37,147.6 $39,657.4 6.9% % Margin 43.6% 39.4% 43.8% 43.6% 43.2% 44.0% 44.0% 44.0% Depreciation 1,400.0 1,700.0 1,800.0 1,850.0 1,720.0 1,900.0 2,028.4 2,165.4 % of Sales 2.3% 3.0% 2.9% 2.7% 2.3% 2.4% 2.4% 2.4% Amortization 656.0 862.0 873.0 835.0 800.0 906.2 906.2 906.2 % of Sales 1.1% 1.5% 1.4% 1.2% 1.1% 1.1% 1.1% 1.0% Total D&A $2,056.0 $2,562.0 $2,673.0 $2,685.0 $2,520.0 $2,806.2 $2,934.6 $3,071.6 % of Sales 3.4% 4.5% 4.3% 3.9% 3.4% 3.5% 3.5% 3.4% Stock-Based Comp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBIT $24,292.0 $20,092.0 $24,690.0 $27,634.4 $29,532.5 $31,990.4 $34,213.0 $36,585.8 7.3% % Margin 40.2% 34.9% 39.5% 39.7% 39.8% 40.4% 40.5% 40.6% EBITA $24,948.0 $20,954.0 $25,563.0 $28,469.4 $30,332.5 $32,896.6 $35,119.2 $37,492.0 7.1% % Margin 41.3% 36.4% 40.9% 40.9% 40.9% 41.6% 41.6% 41.6% Interest (Income) / Expense 0.0 0.0 (151.0) 0.0 0.0 0.0 0.0 0.0 Equity (Income) (1,886.0) (1,171.0) (801.0) 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (Income) / Expense 1,408.0 900.0 1,275.0 0.0 0.0 0.0 0.0 0.0 Income Before Taxes $25,426.0 $21,225.0 $25,240.0 $28,469.4 $30,332.5 $32,896.6 $35,119.2 $37,492.0 7.1% Income tax 6,133.0 5,252.0 6,253.0 6,798.2 7,441.6 8,119.6 8,668.2 9,253.8 % Tax Rate 24.1% 24.7% 24.8% 23.9% 24.5% 24.7% 24.7% 24.7% Net Income $19,293.0 $15,973.0 $18,987.0 $21,671.2 $22,890.9 $24,777.0 $26,451.0 $28,238.1 6.8% % Margin 31.9% 27.8% 30.4% 31.1% 30.9% 31.3% 31.3% 31.3% Diluted EPS $2.04 $1.81 $2.13 $2.53 $2.73 $3.01 $3.19 $3.38 7.5% Diluted Shares Out 9,455.100 8,823.700 8,933.300 8,554.600 8,370.600 8,240.300 8,300.000 8,350.000 Cash to GAAP Reconciliation Amortization $497.8 $648.7 $656.7 $635.6 $603.7 $682.5 $682.5 $682.5 Stock-Based Comp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 One-Time Charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income - GAAP $18,795.2 $15,324.3 $18,330.3 $21,035.6 $22,287.2 $24,094.5 $25,768.5 $27,555.6 7.0% % Margin 31.1% 26.6% 29.3% 30.2% 30.1% 30.4% 30.5% 30.6% Diluted EPS - GAAP $1.99 $1.74 $2.05 $2.46 $2.66 $2.92 $3.10 $3.30 7.6% Capex $3,182.0 $3,119.0 $1,977.0 $2,407.0 $2,565.5 $2,524.3 $2,534.3 $2,615.4 % of Sales 5.3% 5.4% 3.2% 3.5% 3.5% 3.2% 3.0% 2.9%
  29. 29. FINANCIALPROJECTIONSOFBUYERANDTARGET Income Statement Projection of Adobe Systems Inc. 29 FY Ended December 30 FY Ending December 30 CAGR 2008A 2009A 2010A 2011P 2012P 2013P 2014E 2015E 2011-2015 Total Revenue $3,579.9 $2,945.9 $3,800.0 $4,115.1 $4,564.4 $5,023.4 $5,073.6 $5,124.4 5.6% % Growth NA (17.7%) 29.0% 8.3% 10.9% 10.1% 1.0% 1.0% COGS 163.2 112.5 211.5 194.2 233.4 1,175.5 1,187.3 1,199.1 % of Sales 4.6% 3.8% 5.6% 4.7% 5.1% 23.4% 23.4% 23.4% Gross Profit $3,416.7 $2,833.4 $3,588.5 $3,920.9 $4,331.0 $3,847.9 $3,886.4 $3,925.2 0.0% % Margin 95.4% 96.2% 94.4% 95.3% 94.9% 76.6% 76.6% 76.6% SG&A 2,086.1 1,819.1 2,279.4 2,215.0 2,442.1 1,786.7 1,804.6 1,822.6 % of Sales 58.3% 61.8% 60.0% 53.8% 53.5% 35.6% 35.6% 35.6% EBITDA $1,330.6 $1,014.3 $1,309.1 $1,705.9 $1,888.9 $2,061.2 $2,081.8 $2,102.6 5.4% % Margin 37.2% 34.4% 34.5% 41.5% 41.4% 41.0% 41.0% 41.0% Depreciation 83.3 95.9 107.5 65.4 64.0 63.8 64.4 65.1 % of Sales 2.3% 3.3% 2.8% 1.6% 1.4% 1.3% 1.3% 1.3% Amortization 187.0 186.5 185.2 120.0 120.0 140.0 140.0 140.0 % of Sales 5.2% 6.3% 4.9% 2.9% 2.6% 2.8% 2.8% 2.7% Total D&A $270.3 $282.4 $292.7 $185.4 $184.0 $203.8 $204.4 $205.1 % of Sales 7.6% 9.6% 7.7% 4.5% 4.0% 4.1% 4.0% 4.0% Stock-Based Comp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBIT $1,060.3 $731.9 $1,016.4 $1,520.5 $1,704.9 $1,857.4 $1,877.4 $1,897.5 5.7% % Margin 29.6% 24.8% 26.7% 36.9% 37.4% 37.0% 37.0% 37.0% EBITA $1,247.3 $918.4 $1,201.6 $1,640.5 $1,824.9 $1,997.4 $2,017.4 $2,037.5 5.6% % Margin 34.8% 31.2% 31.6% 39.9% 40.0% 39.8% 39.8% 39.8% Interest (Income) / Expense (10.0) (3.4) (57.00) 0.0 0.0 0.0 0.0 0.0 Equity (Income) (32.60) (49.30) (29.60) 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (Income) / Expense 60.8 22.40 13.30 0.0 0.0 0.0 0.0 0.0 Income Before Taxes $1,229.1 $948.7 $1,274.9 $1,640.5 $1,824.9 $1,997.4 $2,017.4 $2,037.5 5.6% Provision for Tax 296.5 234.8 315.8 391.7 447.7 493.0 497.9 502.9 % Tax Rate 24.1% 24.7% 24.8% 23.9% 24.5% 24.7% 24.7% 24.7% Net Income $932.6 $713.9 $959.1 $1,248.8 $1,377.2 $1,504.4 $1,519.4 $1,534.6 5.3% % Margin 26.1% 24.2% 25.2% 30.3% 30.2% 29.9% 29.9% 29.9% Diluted EPS $1.97 $1.07 $1.83 $2.19 $2.43 $2.66 $2.67 $2.67 5.1% Diluted Shares Out 472.800 667.800 523.400 571.100 565.700 566.000 570.000 575.000 Cash to GAAP Reconciliation Amortization $141.9 $140.4 $139.3 $91.3 $90.6 $105.4 $105.4 $105.4 Stock-Based Comp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 One-Time Charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income - GAAP $790.7 $573.6 $819.7 $1,157.4 $1,286.6 $1,399.0 $1,414.0 $1,429.2 5.4% % Margin 22.1% 19.5% 21.6% 28.1% 28.2% 27.8% 27.9% 27.9% Diluted EPS - GAAP $1.67 $0.86 $1.57 $2.03 $2.27 $2.47 $2.48 $2.49 5.2% Capex $111.8 $119.6 $137.5 $133.9 $159.4 $175.6 $202.9 $205.0 % of Sales 3.1% 4.1% 3.6% 3.3% 3.5% 3.5% 4.0% 4.0%
  30. 30. TRANSACTION ANALYSIS 30
  31. 31. TRANSACTIONANALYSIS Sources and Uses of Funds 31 Current Price $33.48 $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00 Sources & Uses Uses Adobe Systems Inc. Common Consideration $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Adobe Systems Inc. Options Consideration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. Preferred Consideration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Equity Consideration $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Adobe Systems Inc. Revolver Refinanced 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. Convertible Debt Assumed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. Convertible Debt Refinanced/Retired 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. Non-Convertible LT Debt Assumed 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 Adobe Systems Inc. Non-Convertible LT Debt Refinanced/Retired 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Levered Consideration $46,379.4 $53,776.6 $55,116.7 $56,456.8 $57,796.9 $59,136.9 $60,477.0 $61,817.1 Acquirer Refinanced Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financing Fees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Advisory Fees 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Total Uses $46,409.4 $53,806.6 $55,146.7 $56,486.8 $57,826.9 $59,166.9 $60,507.0 $61,847.1 Sources Microsoft Corp. Common Consideration $26,919.4 $31,357.8 $32,161.8 $32,965.8 $33,769.9 $34,573.9 $35,378.0 $36,182.0 Microsoft Corp. Options Consideration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Microsoft Corp. Preferred Consideration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash Consideration 17,976.3 20,935.2 21,471.2 22,007.2 22,543.3 23,079.3 23,615.3 24,151.4 Microsoft Corp. Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Acquisition Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. LT Debt Assumed 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 1,513.7 Total Sources $46,409.4 $53,806.6 $55,146.7 $56,486.8 $57,826.9 $59,166.9 $60,507.0 $61,847.1 Check 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Cash Schedule Cash Available Microsoft Corp. Existing Cash $36,788.0 $36,788.0 $36,788.0 $36,788.0 $36,788.0 $36,788.0 $36,788.0 $36,788.0 Adobe Systems Inc. Existing Cash 2,468.0 2,468.0 2,468.0 2,468.0 2,468.0 2,468.0 2,468.0 2,468.0 Minimum Cash Balance (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) Total Cash Available $39,156.0 $39,156.0 $39,156.0 $39,156.0 $39,156.0 $39,156.0 $39,156.0 $39,156.0 Cash Needed Cash Paid to Adobe Systems Inc. Shareholders $17,946.3 $20,905.2 $21,441.2 $21,977.2 $22,513.3 $23,049.3 $23,585.3 $24,121.4 Financing Fees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Advisory Fees 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Microsoft Corp. Debt Retired 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adobe Systems Inc. Debt Retired 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash Needed Before Revolver $17,976.3 $20,935.2 $21,471.2 $22,007.2 $22,543.3 $23,079.3 $23,615.3 $24,151.4 Optional Paydown of Adobe Systems Inc. Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Optional Paydown of Microsoft Corp. Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Cash Needed $17,976.3 $20,935.2 $21,471.2 $22,007.2 $22,543.3 $23,079.3 $23,615.3 $24,151.4 Transaction Prices Per Adobe Systems Inc. Share
  32. 32. TRANSACTIONANALYSIS Pro Forma Balance Sheet 32 Transaction Value Per Share $41.00 Microsoft Corp. Adobe Systems Inc. Adjustments Pro Forma 25-04-11 25-04-11 Write-Up Financing 25-04-11 Assets Current Assets Cash and Equivalents $36,788.0 $2,468.0 ($22,007.2) $17,248.8 Accounts Receivable 13,014.0 554.3 13,568.3 Inventory 740.0 0.0 740.0 Deferred Income Taxes 0.0 0.0 0.0 Other Current Assets 5,134.0 193.7 5,327.7 Total Current Assets $55,676.0 $3,216.0 $36,884.8 Net PP&E $7,630.0 $448.9 15.0 $8,093.9 Goodwill 12,394.0 3,641.8 40,250.0 56,285.8 Intangibles 1,158.0 528.8 12,437.7 14,124.5 Investments/Restricted Cash 7,754.0 246.0 8,000.0 Unearned Compensation 0.0 0.0 0.0 0.0 Deferred Financing Fees 0.0 0.0 0.0 0.0 Other Assets 1,501.0 59.6 1,560.6 Total Assets $86,113.0 $8,141.1 $124,949.5 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $4,025.0 $52.4 $4,077.4 Accrued Expenses 0.0 0.0 0.0 Income Taxes Payable 1,074.0 53.7 1,127.7 Deferred Revenue 0.0 0.0 0.0 Other Current Liabilities 20,048.0 953.1 21,001.1 Current Portion of Long-Term Debt 1,000.0 8.8 1,008.8 Total Current Liabilities $26,147.0 $1,068.0 $27,215.0 Revolver $0.0 $0.0 $0.0 $0.0 Non-Convertible Debt 4,939.0 1,513.7 0.0 6,452.7 Convertible Debt 0.0 0.0 0.0 0.0 Deferred Income Taxes 229.0 103.1 3,055.1 (103.1) 3,284.1 Other Long-Term Liabilities 8,623.0 263.9 8,886.9 Total Liabilities $39,938.0 $2,948.7 $45,838.7 Preferred Stock, par value $0.0 $0.0 $0.0 $0.0 Common Stock, par value 62,856.0 0.1 32,965.7 95,821.8 APIC / Capital Surplus 0.0 2,458.3 (2,458.3) 0.0 Treasury Stock 0.0 (3,264.3) 3,264.3 0.0 Accum. & Other Comp. Income (Loss) (176.0) 7.8 (7.8) (176.0) Unrealized Gain/Loss Marketable Securities 1,231.0 9.6 (9.6) 1,231.0 Retained Earnings (17,736.0) 5,980.9 (6,010.9) (17,766.0) Total Stockholders' Equity $46,175.0 $5,192.4 $79,110.8 Total Liabilities and Stockholders' Equity $86,113.0 $8,141.1 $124,949.5 Check 0.000 0.000 0.000
  33. 33. TRANSACTIONANALYSIS Pro Forma Income Statement 33 FY Ended December 30 FY Ending December 30 CAGR 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2011-2015 Total Revenue $63,999.9 $60,498.9 $66,284.0 $73,705.1 $78,687.4 $84,154.4 $89,551.0 $95,309.3 6.6% % Growth NA (5.5%) 9.6% 11.2% 6.8% 6.9% 6.9% 6.9% COGS 9,705.2 9,705.5 9,933.5 12,675.8 13,784.5 16,972.4 18,051.4 19,202.7 COGS Synergies 0.0 0.0 0.0 0.0 (25.0) (25.0) (25.0) (25.0) % of Sales 15.2% 16.0% 15.0% 17.2% 17.5% 20.1% 20.1% 20.1% Gross Profit $54,294.7 $50,793.4 $56,350.5 $61,029.3 $64,927.9 $67,207.0 $71,524.5 $76,131.6 5.7% % Margin 84.8% 84.0% 85.0% 82.8% 82.5% 79.9% 79.9% 79.9% SG&A 26,616.1 27,125.1 27,678.4 29,004.0 30,961.5 30,324.2 32,270.2 34,346.6 SG&A Synergies 0.0 0.0 0.0 0.0 (50.0) (50.0) (50.0) (50.0) % of Sales 41.6% 44.8% 41.8% 39.4% 39.3% 36.0% 36.0% 36.0% EBITDA $27,678.6 $23,668.3 $28,672.1 $32,025.3 $34,016.4 $36,932.8 $39,304.4 $41,835.0 6.9% % Margin 43.2% 39.1% 43.3% 43.5% 43.2% 43.9% 43.9% 43.9% Existing Depreciation 1,483.3 1,795.9 1,907.5 1,915.4 1,784.0 1,963.8 2,092.8 2,230.5 New Depreciation 0.0 0.0 0.0 1.5 1.5 1.5 1.5 1.5 % of Sales 2.3% 3.0% 2.9% 2.6% 2.3% 2.3% 2.3% 2.3% Existing Amortization 843.0 1,048.5 1,058.2 955.0 920.0 1,046.2 1,046.2 1,046.2 New Amortization 0.0 0.0 0.0 2,487.5 2,487.5 2,487.5 2,487.5 2,487.5 % of Sales 1.3% 1.7% 1.6% 4.7% 4.3% 4.2% 3.9% 3.7% Total D&A 2,326.3 2,844.4 2,965.7 5,359.4 5,193.0 5,499.0 5,628.0 5,765.7 % of Sales 3.6% 4.7% 4.5% 7.3% 6.6% 6.5% 6.3% 6.0% Stock-Based Comp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBIT $25,352.3 $20,823.9 $25,706.4 $26,665.9 $28,823.4 $31,433.8 $33,676.3 $36,069.3 7.8% % Margin 39.6% 34.4% 38.8% 36.2% 36.6% 37.4% 37.6% 37.8% EBITA $26,195.3 $21,872.4 $26,764.6 $30,108.4 $32,230.9 $34,967.5 $37,210.1 $39,603.0 7.1% % Margin 40.9% 36.2% 40.4% 40.8% 41.0% 41.6% 41.6% 41.6% Interest (Income) / Expense 0.0 440.1 440.1 440.1 440.1 Equity (Income) 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Other (Income) / Expense 0.0 0.0 0.0 0.0 0.0 Other Transaction Adjustments 0.0 0.0 0.0 0.0 0.0 Income Before Taxes $30,108.4 $31,790.8 $34,527.4 $36,769.9 $39,162.9 6.8% Income Tax 7,386.6 7,799.4 8,470.7 9,020.9 9,608.0 % Tax Rate 24.5% 24.5% 24.5% 24.5% 24.5% Pro Forma Net Income $22,721.8 $23,991.4 $26,056.6 $27,749.0 $29,554.9 6.8% % Margin 30.8% 30.5% 31.0% 31.0% 31.0% Pro Forma Diluted EPS $2.31 $2.48 $2.73 $2.89 $3.07 7.4% Diluted Shares Out 9,846.365 9,662.365 9,532.065 9,591.765 9,641.765 Accredition/Dulition Microsoft Corp. Standalone Diluted EPS $2.53 $2.73 $3.01 $3.19 $3.38 $ Accretion / (Dilution) ($0.23) ($0.25) ($0.27) ($0.29) ($0.32) % Accretion / (Dilution) (8.9%) (9.2%) (9.1%) (9.2%) (9.4%) Incremental Pre-Tax Synergies to Breakeven $2,944.1 $3,222.7 $3,451.2 $3,735.0 $4,043.9 Capex $2,540.9 $2,724.9 $2,699.9 $2,737.3 $2,820.3 % of Sales 3.4% 3.5% 3.2% 3.1% 3.0%
  34. 34. TRANSACTIONANALYSIS Purchase Price Allocation and Accounting Adjustments 34 Purchase Price Calculation Common Equity Consideration $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Fair Value of Unvested Options 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Fair Value of Vested Options 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Fair Value of Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Purchase Price $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Unearned Compensation $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Adjusted Purchase Price $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Purchase Price Allocation Adjusted Purchase Price $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Less: Target Book Value of Net Assets (5,192.4) (5,192.4) (5,192.4) (5,192.4) (5,192.4) (5,192.4) (5,192.4) (5,192.4) Excess Purchase Price to Allocate $39,673.3 $47,070.5 $48,410.6 $49,750.7 $51,090.8 $52,430.8 $53,770.9 $55,111.0 Write-Up of Tangible Assets $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 Write-Up of Identifiable Intangible Assets 9,918.3 11,767.6 12,102.7 12,437.7 12,772.7 13,107.7 13,442.7 13,777.7 Write-Off of Target's Existing Goodwill (3,641.8) (3,641.8) (3,641.8) (3,641.8) (3,641.8) (3,641.8) (3,641.8) (3,641.8) Write-Off of Target's Existing DTL 103.1 103.1 103.1 103.1 103.1 103.1 103.1 103.1 Allocation to Goodwill (Before DTL Allocation) $33,278.7 $38,826.6 $39,831.7 $40,836.7 $41,841.8 $42,846.8 $43,851.9 $44,856.9 DTL From Write-Up of Assets ($2,437.0) ($2,890.7) ($2,972.9) ($3,055.1) ($3,137.3) ($3,219.4) ($3,301.6) ($3,383.8) DTL From Deferred Compensation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Goodwill Created $35,715.7 $41,717.3 $42,804.5 $43,891.8 $44,979.0 $46,066.3 $47,153.5 $48,240.8 Amortization of Identifiable Intangibles Excess of Purchase Price Over Book Value $39,673.3 $47,070.5 $48,410.6 $49,750.7 $51,090.8 $52,430.8 $53,770.9 $55,111.0 % Allocated to Identifiable Intangibles 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Write-Up of Intangible Assets $9,918.3 $11,767.6 $12,102.7 $12,437.7 $12,772.7 $13,107.7 $13,442.7 $13,777.7 Amortization Period (yrs) 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Annual Incremental Amortization Expense $1,983.7 $2,353.5 $2,420.5 $2,487.5 $2,554.5 $2,621.5 $2,688.5 $2,755.5 Marginal Tax Rate 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% After-Tax Annual Amortization Expense $1,497.0 $1,776.1 $1,826.7 $1,877.3 $1,927.8 $1,978.4 $2,029.0 $2,079.5 Depreciation of Fixed Asset Write-Up Write-Up of Tangible Assets $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 Depreciation Period (yrs) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Annual Incremental Depreciation Expense $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 Marginal Tax Rate 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% 24.5% After-Tax Annual Depreciation Expense $1.1 $1.1 $1.1 $1.1 $1.1 $1.1 $1.1 $1.1
  35. 35. TRANSACTIONANALYSIS Transaction Premium and Multiple Analysis 35 Adobe Systems Inc. Transaction Prices Per Adobe Systems Inc. Share Microsoft Corp. $33.48 $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00 $25.52 Common Stock $43,858.8 $51,090.0 $52,400.0 $53,710.0 $55,020.0 $56,330.0 $57,640.0 $58,950.0 $215,133.6 Stock Options 1,006.9 1,172.9 1,203.0 1,233.1 1,263.2 1,293.2 1,323.3 1,353.4 4,772.2 ITM Convertible Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Diluted Equity Value $44,865.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 $219,905.8 Net Debt (945.5) (945.5) (945.5) (945.5) (945.5) (945.5) (945.5) (945.5) (30,849.0) Total Enterprise Value $43,920.2 $51,317.4 $52,657.5 $53,997.6 $55,337.7 $56,677.7 $58,017.8 $59,357.9 $189,056.8 Premiums Analysis Adobe Systems Inc. Transaction Premium Per Adobe Systems Inc. Share Microsoft Corp. Current Price $33.48 0.0% 16.5% 19.5% 22.5% 25.4% 28.4% 31.4% 34.4% 0.0% $25.52 52-Week High 36.35 (7.9%) 7.3% 10.0% 12.8% 15.5% 18.3% 21.0% 23.8% (19.2%) 31.58 52-Week Low 23.45 42.8% 66.3% 70.6% 74.8% 79.1% 83.4% 87.6% 91.9% 12.3% 22.73 1 Week Trading Average 32.65 2.5% 19.4% 22.5% 25.6% 28.6% 31.7% 34.8% 37.8% (0.4%) 25.62 1 Month Trading Average 34.66 (3.4%) 12.5% 15.4% 18.3% 21.2% 24.1% 26.9% 29.8% (0.7%) 25.71 3 Months Trading Average 33.69 (0.6%) 15.8% 18.7% 21.7% 24.7% 27.6% 30.6% 33.6% 9.8% 23.24 6 Months Trading Average 40.47 (17.3%) (3.6%) (1.2%) 1.3% 3.8% 6.3% 8.7% 11.2% (0.4%) 25.62 Multiples Analysis Transaction Muliple Analysis of Adobe Systems Inc. Acquisition FY 2011P Revenue $4,115.1 10.67x 12.47x 12.80x 13.12x 13.45x 13.77x 14.10x 14.42x 2.72x $69,590.0 FY 2012P Revenue 4,564.4 9.62x 11.24x 11.54x 11.83x 12.12x 12.42x 12.71x 13.00x 2.55x 74,123.0 FY 2013P Revenue 5,023.4 8.74x 10.22x 10.48x 10.75x 11.02x 11.28x 11.55x 11.82x 2.39x 79,131.0 FY 2011P EBITDA $1,705.9 25.7x 30.1x 30.9x 31.7x 32.4x 33.2x 34.0x 34.8x 6.2x $30,319.4 FY 2012P EBITDA 1,888.9 23.3x 27.2x 27.9x 28.6x 29.3x 30.0x 30.7x 31.4x 5.9x 32,052.5 FY 2013P EBITDA 2,061.2 21.3x 24.9x 25.5x 26.2x 26.8x 27.5x 28.1x 28.8x 5.4x 34,796.6 FY 2011P EBITA $1,640.5 26.8x 31.3x 32.1x 32.9x 33.7x 34.5x 35.4x 36.2x 6.6x $28,469.4 FY 2012P EBITA 1,824.9 24.1x 28.1x 28.9x 29.6x 30.3x 31.1x 31.8x 32.5x 6.2x 30,332.5 FY 2013P EBITA 1,997.4 22.0x 25.7x 26.4x 27.0x 27.7x 28.4x 29.0x 29.7x 5.7x 32,896.6 FY 2011P Cash P/E $2.19 15.3x 17.8x 18.3x 18.8x 19.2x 19.7x 20.1x 20.6x 10.1x $2.53 FY 2012P Cash P/E 2.43 13.8x 16.0x 16.4x 16.8x 17.3x 17.7x 18.1x 18.5x 9.3x 2.73 FY 2013P Cash P/E 2.66 12.6x 14.7x 15.0x 15.4x 15.8x 16.2x 16.6x 16.9x 8.5x 3.01
  36. 36. EPS ACCRETION/DILUTION ANALYSIS 36
  37. 37. EPSACCRETION/DILUTIONANALYSIS EPS Accretion/Dilution – All Stock Deal 37 Standalone All Stock Microsoft Corp. Transaction Value Per Share $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00 Equity Purchase Price $215,290.7 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 Transaction Multiples Analysis FY 2011P Revenue 2.72x 12.47x 12.80x 13.12x 13.45x 13.77x 14.10x 14.42x FY 2012P Revenue 2.55x 11.24x 11.54x 11.83x 12.12x 12.42x 12.71x 13.00x FY 2011P EBITDA 6.2x 30.1x 30.9x 31.7x 32.4x 33.2x 34.0x 34.8x FY 2012P EBITDA 5.9x 27.2x 27.9x 28.6x 29.3x 30.0x 30.7x 31.4x FY 2011P Cash P/E 10.1x 17.8x 18.3x 18.8x 19.2x 19.7x 20.1x 20.6x FY 2012P Cash P/E 9.3x 16.0x 16.4x 16.8x 17.3x 17.7x 18.1x 18.5x Microsoft Corp. Standalone EPS FY 2012P Cash Net Income $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 FY 2012P Shares Outstanding 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 FY 2012P Cash EPS $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 After-Tax Acquisition Adjustments Adobe Systems Inc. FY 2012P Cash Net Income $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 Interest Lost on Cash Used (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) Incremental Interest on New Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest Gained on Conversion of Convert(s) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Deferred Stock-Based Compensation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of Indentifiable Intangibles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Depreciation of Acquired Tangible Assets (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) Write-Down of Deferred Revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pro Forma Cash Net Income Without Synergies $24,266.5 $24,266.5 $24,266.5 $24,266.5 $24,266.5 $24,266.5 $24,266.5 After-Tax Synergies 56.6 56.6 56.6 56.6 56.6 56.6 56.6 Pro Forma Cash Net Income With Synergies $24,323.1 $24,323.1 $24,323.1 $24,323.1 $24,323.1 $24,323.1 $24,323.1 Diluted Shares - Treasury Method Microsoft Corp. FY 2012P Shares Outstanding 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 Shares Issued for Adobe Systems Inc. Basic Shares 2,047.920 2,100.431 2,152.942 2,205.453 2,257.963 2,310.474 2,362.985 Total Shares Post-Transaction 10,418.520 10,471.031 10,523.542 10,576.053 10,628.563 10,681.074 10,733.585 Accretion/Dilution Summary FY 2012P Cash EPS Without Synergies $2.73 $2.33 $2.32 $2.31 $2.29 $2.28 $2.27 $2.26 $ Accretion / Dilution ($0.41) ($0.42) ($0.43) ($0.44) ($0.45) ($0.46) ($0.47) % Accretion / Dilution (14.8%) (15.3%) (15.7%) (16.1%) (16.5%) (16.9%) (17.3%) Pre-Tax Synergies to Breakeven $5,598.2 $5,788.5 $5,978.8 $6,169.1 $6,359.4 $6,549.7 $6,739.9 % of Combined Opex (Excl. Syngergies) 11.2% 11.6% 12.0% 12.4% 12.7% 13.1% 13.5% FY 2012P Cash EPS With Synergies $2.73 $2.33 $2.32 $2.31 $2.30 $2.29 $2.28 $2.27 $ Accretion / Dilution ($0.40) ($0.41) ($0.42) ($0.43) ($0.45) ($0.46) ($0.47) % Accretion / Dilution (14.6%) (15.1%) (15.5%) (15.9%) (16.3%) (16.7%) (17.1%) Pre-Tax Synergies to Breakeven $5,523.2 $5,713.5 $5,903.8 $6,094.1 $6,284.4 $6,474.7 $6,664.9 % of Combined Opex (Excl. Syngergies) 11.1% 11.4% 11.8% 12.2% 12.6% 13.0% 13.3% Ownership Structure Post Transaction % Shares Owned by Microsoft Corp. Shareholders Post-Transaction 80.3% 79.9% 79.5% 79.1% 78.8% 78.4% 78.0% % Shares Owned by Adobe Systems Inc. Post-Transaction 19.7% 20.1% 20.5% 20.9% 21.2% 21.6% 22.0% Total % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
  38. 38. EPSACCRETION/DILUTIONANALYSIS EPS Accretion/Dilution – 60% Stock + 40% Cash Deal 38 Standalone Microsoft Corp. Transaction Value Per Share Equity Purchase Price $215,290.7 Transaction Multiples Analysis FY 2011P Revenue 2.72x FY 2012P Revenue 2.55x FY 2011P EBITDA 6.2x FY 2012P EBITDA 5.9x FY 2011P Cash P/E 10.1x FY 2012P Cash P/E 9.3x Microsoft Corp. Standalone EPS FY 2012P Cash Net Income FY 2012P Shares Outstanding FY 2012P Cash EPS After-Tax Acquisition Adjustments Adobe Systems Inc. FY 2012P Cash Net Income Interest Lost on Cash Used Incremental Interest on New Debt Interest Gained on Conversion of Convert(s) Deferred Stock-Based Compensation Amortization of Indentifiable Intangibles Depreciation of Acquired Tangible Assets Write-Down of Deferred Revenue Pro Forma Cash Net Income Without Synergies After-Tax Synergies Pro Forma Cash Net Income With Synergies Diluted Shares - Treasury Method Microsoft Corp. FY 2012P Shares Outstanding Shares Issued for Adobe Systems Inc. Basic Shares Total Shares Post-Transaction Accretion/Dilution Summary FY 2012P Cash EPS Without Synergies $2.73 $ Accretion / Dilution % Accretion / Dilution Pre-Tax Synergies to Breakeven % of Combined Opex (Excl. Syngergies) FY 2012P Cash EPS With Synergies $2.73 $ Accretion / Dilution % Accretion / Dilution Pre-Tax Synergies to Breakeven % of Combined Opex (Excl. Syngergies) Ownership Structure Post Transaction % Shares Owned by Microsoft Corp. Shareholders Post-Transaction % Shares Owned by Adobe Systems Inc. Post-Transaction Total % 60.0% Stock / 40.0% Cash $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 12.47x 12.80x 13.12x 13.45x 13.77x 14.10x 14.42x 11.24x 11.54x 11.83x 12.12x 12.42x 12.71x 13.00x 30.1x 30.9x 31.7x 32.4x 33.2x 34.0x 34.8x 27.2x 27.9x 28.6x 29.3x 30.0x 30.7x 31.4x 17.8x 18.3x 18.8x 19.2x 19.7x 20.1x 20.6x 16.0x 16.4x 16.8x 17.3x 17.7x 18.1x 18.5x $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 $24,267.0 $24,267.0 $24,267.0 $24,267.0 $24,267.0 $24,267.0 $24,267.0 56.6 56.6 56.6 56.6 56.6 56.6 56.6 $24,323.6 $24,323.6 $24,323.6 $24,323.6 $24,323.6 $24,323.6 $24,323.6 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 1,228.752 1,260.259 1,291.765 1,323.272 1,354.778 1,386.284 1,417.791 9,599.352 9,630.859 9,662.365 9,693.872 9,725.378 9,756.884 9,788.391 $2.53 $2.52 $2.51 $2.50 $2.50 $2.49 $2.48 ($0.21) ($0.21) ($0.22) ($0.23) ($0.24) ($0.25) ($0.26) (7.6%) (7.9%) (8.2%) (8.5%) (8.8%) (9.1%) (9.3%) $2,629.2 $2,743.4 $2,857.6 $2,971.7 $3,085.9 $3,200.1 $3,314.2 5.3% 5.5% 5.7% 6.0% 6.2% 6.4% 6.6% $2.53 $2.53 $2.52 $2.51 $2.50 $2.49 $2.48 ($0.20) ($0.21) ($0.22) ($0.23) ($0.23) ($0.24) ($0.25) (7.3%) (7.6%) (7.9%) (8.2%) (8.5%) (8.8%) (9.1%) $2,554.2 $2,668.4 $2,782.6 $2,896.7 $3,010.9 $3,125.1 $3,239.2 5.1% 5.3% 5.6% 5.8% 6.0% 6.3% 6.5% 87.2% 86.9% 86.6% 86.3% 86.1% 85.8% 85.5% 12.8% 13.1% 13.4% 13.7% 13.9% 14.2% 14.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
  39. 39. EPSACCRETION/DILUTIONANALYSIS EPS Accretion/Dilution – All Cash Deal 39 Standalone Microsoft Corp. Transaction Value Per Share Equity Purchase Price $215,290.7 Transaction Multiples Analysis FY 2011P Revenue 2.72x FY 2012P Revenue 2.55x FY 2011P EBITDA 6.2x FY 2012P EBITDA 5.9x FY 2011P Cash P/E 10.1x FY 2012P Cash P/E 9.3x Microsoft Corp. Standalone EPS FY 2012P Cash Net Income FY 2012P Shares Outstanding FY 2012P Cash EPS After-Tax Acquisition Adjustments Adobe Systems Inc. FY 2012P Cash Net Income Interest Lost on Cash Used Incremental Interest on New Debt Interest Gained on Conversion of Convert(s) Deferred Stock-Based Compensation Amortization of Indentifiable Intangibles Depreciation of Acquired Tangible Assets Write-Down of Deferred Revenue Pro Forma Cash Net Income Without Synergies After-Tax Synergies Pro Forma Cash Net Income With Synergies Diluted Shares - Treasury Method Microsoft Corp. FY 2012P Shares Outstanding Shares Issued for Adobe Systems Inc. Basic Shares Total Shares Post-Transaction Accretion/Dilution Summary FY 2012P Cash EPS Without Synergies $2.73 $ Accretion / Dilution % Accretion / Dilution Pre-Tax Synergies to Breakeven % of Combined Opex (Excl. Syngergies) FY 2012P Cash EPS With Synergies $2.73 $ Accretion / Dilution % Accretion / Dilution Pre-Tax Synergies to Breakeven % of Combined Opex (Excl. Syngergies) Ownership Structure Post Transaction % Shares Owned by Microsoft Corp. Shareholders Post-Transaction % Shares Owned by Adobe Systems Inc. Post-Transaction Total % All Cash $39.00 $40.00 $41.00 $42.00 $43.00 $44.00 $45.00 $52,262.9 $53,603.0 $54,943.1 $56,283.2 $57,623.2 $58,963.3 $60,303.4 12.47x 12.80x 13.12x 13.45x 13.77x 14.10x 14.42x 11.24x 11.54x 11.83x 12.12x 12.42x 12.71x 13.00x 30.1x 30.9x 31.7x 32.4x 33.2x 34.0x 34.8x 27.2x 27.9x 28.6x 29.3x 30.0x 30.7x 31.4x 17.8x 18.3x 18.8x 19.2x 19.7x 20.1x 20.6x 16.0x 16.4x 16.8x 17.3x 17.7x 18.1x 18.5x $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 $22,890.9 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 $2.73 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 $1,377.2 (789.3) (809.5) (829.7) (850.0) (870.2) (890.4) (910.6) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 $23,477.7 $23,457.5 $23,437.2 $23,417.0 $23,396.8 $23,376.6 $23,356.3 56.6 56.6 56.6 56.6 56.6 56.6 56.6 $23,534.3 $23,514.1 $23,493.8 $23,473.6 $23,453.4 $23,433.2 $23,412.9 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 8,370.600 $2.80 $2.80 $2.80 $2.80 $2.80 $2.79 $2.79 $0.07 $0.07 $0.07 $0.06 $0.06 $0.06 $0.06 2.6% 2.5% 2.4% 2.3% 2.2% 2.1% 2.0% ($777.5) ($750.7) ($723.9) ($697.1) ($670.3) ($643.5) ($616.7) (1.6%) (1.5%) (1.4%) (1.4%) (1.3%) (1.3%) (1.2%) $2.81 $2.81 $2.81 $2.80 $2.80 $2.80 $2.80 $0.08 $0.07 $0.07 $0.07 $0.07 $0.06 $0.06 2.8% 2.7% 2.6% 2.5% 2.5% 2.4% 2.3% ($852.5) ($825.7) ($798.9) ($772.1) ($745.3) ($718.5) ($691.7) (1.7%) (1.7%) (1.6%) (1.5%) (1.5%) (1.4%) (1.4%) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
  40. 40. EPSACCRETION/DILUTIONANALYSIS EPS Accretion/Dilution Sensitivity Analysis 40 Accretion/Dilution without Synergy Accretion/Dilution with Synergy Pre Tax Synergy Required to Breakeven % Share Owned by Microsoft Post Transaction -7.9% 38.00$ 39.00$ 40.00$ 41.00$ 42.00$ 30% -9.1% -9.5% -9.8% -10.2% -10.5% Cash 35% -8.2% -8.5% -8.9% -9.2% -9.5% % 40% -7.3% -7.6% -7.9% -8.2% -8.5% 45% -6.3% -6.6% -6.8% -7.1% -7.4% 50% -5.3% -5.5% -5.8% -6.1% -6.3% Offer Price -7.6% 38.00$ 39.00$ 40.00$ 41.00$ 42.00$ 30% -8.9% -9.3% -9.6% -10.0% -10.3% Cash 35% -8.0% -8.3% -8.6% -9.0% -9.3% % 40% -7.0% -7.3% -7.6% -7.9% -8.2% 45% -6.1% -6.3% -6.6% -6.9% -7.2% 50% -5.1% -5.3% -5.6% -5.8% -6.1% Offer Price 274339.3% 38.00$ 39.00$ 40.00$ 41.00$ 42.00$ 30% $3,238.1 $3,371.3 $3,504.5 $3,637.7 $3,770.9 Cash 35% $2,876.6 $3,000.3 $3,124.0 $3,247.6 $3,371.3 % 40% $2,515.1 $2,629.2 $2,743.4 $2,857.6 $2,971.7 45% $2,153.5 $2,258.2 $2,362.8 $2,467.5 $2,572.1 50% $1,792.0 $1,887.1 $1,982.3 $2,077.4 $2,172.5 Offer Price 86.9% 38.00$ 39.00$ 40.00$ 41.00$ 42.00$ 30% 85.7% 85.4% 85.1% 84.7% 84.4% Cash 35% 86.6% 86.3% 86.0% 85.7% 85.4% % 40% 87.5% 87.2% 86.9% 86.6% 86.3% 45% 88.4% 88.1% 87.9% 87.6% 87.3% 50% 89.4% 89.1% 88.9% 88.6% 88.4% Offer Price
  41. 41. PROFITABILITY CONTRIBUTION ANALYSIS 41
  42. 42. PROFITABILITYCONTRIBUTIONANALYSIS Profitability Contribution by Buyer and Target 42 Microsoft Corp. Adobe Systems Inc. Combined (1) Synergies Pro Forma (2) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 Revenue $69,590.0 $74,123.0 $4,115.1 $4,564.4 $73,705.1 $78,687.4 $0.0 $0.0 $73,705.1 $78,687.4 % Growth 11.4% 6.5% 8.3% 10.9% 11.2% 6.8% 11.2% 6.8% EBITDA $30,319.4 $32,052.5 $1,705.9 $1,888.9 $32,025.3 $33,941.4 $0.0 $75.0 $32,025.3 $34,016.4 % Margin 43.6% 43.2% 41.5% 41.4% 43.5% 43.1% 43.5% 43.2% GAAP Net Income $21,035.6 $22,287.2 $1,157.4 $1,286.6 $22,193.0 $23,573.8 $0.0 $56.6 $22,249.6 $23,630.4 % Margin 30.2% 30.1% 28.1% 28.2% 30.1% 30.0% 30.2% 30.0% Cash Net Income $21,671.2 $22,890.9 $1,248.8 $1,377.2 $22,920.0 $24,268.1 $0.0 $56.6 $22,976.6 $24,324.7 % Margin 31.1% 30.9% 30.3% 30.2% 31.1% 30.8% 31.2% 30.9% Contribution Revenue 94.4% 94.2% 5.6% 5.8% 100.0% 100.0% EBITDA 94.7% 94.4% 5.3% 5.6% 100.0% 100.0% GAAP Net Income 94.8% 94.5% 5.2% 5.5% 100.0% 100.0% Cash Net Income 94.6% 94.3% 5.4% 5.7% 100.0% 100.0%
  43. 43. 43 Prepared by Deb Sahoo MBA, Ross School of Business University of Michigan, Ann Arbor

×