Adobe shares get bruised as DOJ suit fears grow
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Adobe (NASDAQ:ADBE) watched its shares drop by almost 8% as trading progressed Friday following reports that the U.S. Department of Justice could soon sue to block its proposed $20B acquisition of web designer Figma.
The DOJ is reportedly preparing to sue to stop Adobe's (ADBE) deal for Figma due to concerns that the stock-and-cash acquisition will give Adobe an unfair advantage in the market for web design software and services. The suit could be filed as early as next week, according to a report from Bloomberg.
In addition to being in the crosshairs of U.S. regulators, Adobe (ADBE) also faces antitrust reviews from officials in the United Kingdon and the European Union. Analyst Brad Sills, of Bank of America Securities, said that the European regulators could have their opinions of acquisition swayed by the DOJ's lawsuit.
"At this stage, there is no further information on the lawsuit and we note that it may not necessarily lead into the deal not closing," Sills said. "[However], we also note the heightened risk of a delay in the approval process."
Sills said that with 68M users, Figma is "a pervasive tool in the creative professional end market," and that if the deal were terminated, "it would create a longer-term overhang associated with Figma remaining a standalone company."
William Blair analyst Jake Roberge said that even if the deal gets nixed by the DOJ, Adobe (ADBE) has the right to appeal that ruling and that "an exaggerated legal process could see a final ruling on the case in the summer of 2023."
Roberge said that even if the deal falls through for regulatory reasons, Adobe (ADBE) will be on the hook for a $1B breakup fee. Should the deal end getting squashed, Roberge said Adobe's (ADBE) core creative franchise remains strong and "will be a double-digit growth business" for the next few years even without Figma.
Separately, earlier this week, Adobe (ADBE) signed a new deal with Qualcomm (QCOM) for the communications chipmaker to use Adobe's marketing software.