Adobe (ADBE) fell Friday following news that the US Justice Department plans to block the software giant’s $20 billion acquisition of Figma. ADBE shares fell more than 7%.
Bloomberg reported late Thursday that the Justice Department is preparing to file an antitrust suit against the deal as early as next month. The deal also faces antitrust investigations in the European Union and the UK
The Justice Department is concerned that Adobe’s acquisition of Figma would reduce design software options used by creative professionals. Adobe makes software applications such as Photoshop, Illustrator, Premiere and Acrobat.
Adobe announced in September its intention to acquire Figma, a web-first collaborative design platform. At the time, analysts said the $20 billion purchase price was excessive.
ADBE stock drops reportedly
In the stock market, ADBE shares fell 7.6% to 320.54 today.
Investors are concerned that an antitrust lawsuit could create distractions and execution problems for Adobe’s core business, William Blair analyst Jake Roberge said in a note to clients.
“While we recognize that a lengthy legal dispute related to the Figma acquisition adds another layer of complexity to the Adobe story, we continue to believe in the stock over the long term,” said Roberge. He rates ADBE stocks as outperforming.
Blocking the Figma deal would be a “material negative” for Adobe’s growth, SVB MoffettNathanson analyst Sterling Auty said in a note to clients. The acquisition would shave two years off the development roadmap to make Adobe’s Creative Cloud suite fully cloud-native.
“You would think that a product called Creative Cloud is already in the cloud, but it isn’t,” said Auty. “Creative Cloud’s core functionality runs on devices compared to competitor Canva which is truly cloud-based and accessible through a browser.”
He added, “Adobe has already started the development process to bring Creative Cloud to the cloud, but what Figma brings is the underlying architecture that is proven to be scalable.”
Auty rates ADBE stocks as market performance or neutral.
Big Tech in the sights of regulators
US antitrust regulators under the Biden administration have tried to stop other acquisitions by Big Tech companies, including Microsoft (MSFT) and Facebook owner Meta platforms (META).
In December, the Federal Trade Commission filed an antitrust suit to block Microsoft’s $68.7 billion purchase of the video game publisher Activision Blizzard (ATVI).
Earlier this month, the FTC failed in its attempt to prevent Meta from buying virtual reality fitness startup Within.
ADBE stock ranks fourth out of six stocks in IBD’s Computer Software-Desktop industry group, according to IBD Stock Checkup. It has a mediocre IBD Composite Rating of 60 out of 99. IBD’s Composite Rating combines five separate proprietary ratings into one user-friendly rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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