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ACQUISITION OF ADOBE SYSTEMS BY MICROSOFT CORP.

DEB SAHOO, MBA, ROSS SCHOOL OF BUSINESS, UNIVERSITY OF MICHIGAN, ANN ARBOR
April 25, 2011

INDUSTRY NEWS

Industry Buzz

Target Overview

Financial Statements of Buyer

Financial Statements of Target

12

Discounted Cash Flow Valuation of Target

16

Comparable Company Valuation of Target

19

Precedent Transactions Valuation of Target

23

Valuation Summary

25

Financial Projections of Buyer and Target

27

Transaction Analysis

30

EPS Accretion/Dilution Analysis

36

Profitability Contribution Analysis

41

TABLE OF CONTENTS

Executive Summary

EXECUTIVE SUMMARY

Target Overview

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
intelligent devices 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

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

Key Financials of Buyer and Target

Valuation

Buyer

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

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

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

Target

EXECUTIVE SUMMARY

Buyer Overview

TARGET OVERVIEW

Products and Services

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 serverbased computers, as well as various non-PC and mobile
devices
Has operations in the Americas, Europe, Middle East and
Africa (EMEA) and Asia

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

Industry Comparables

Stock Performance

Stock Price: $33.48


52 Week High: $36.35
52 Week Low: $23.45
Stock Beta: 1.59
FY 2010 EPS: $1.83

BACKGROUND AND TARGET OVERVIEW

Company Overview

FINANCIAL STATEMENTS OF BUYER

30-Jun-10

30-Jun-09

30-Jun-08

29-Jun-07

30-Jun-06

62,484.0

57,553.0

60,420.0

51,122.0

44,282.0

12,395.0

12,155.0

11,598.0

10,693.0

7,650.0

9,722.0

9,593.0

9,542.0

9,253.0

6,660.0

2,673.0

2,562.0

2,056.0

1,440.0

990.0

1,800.0

1,700.0

1,400.0

1,170.0

863.0

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

8,714.0

9,010.0

8,164.0

7,121.0

6,584.0

16,685.0

16,296.0

16,366.0

14,273.0

12,256.0

24,690.0

20,092.0

24,292.0

19,035.0

17,792.0

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 Inc ome (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

25,013.0

19,821.0

23,814.0

20,135.0

18,044.0

6,253.0

5,252.0

6,133.0

6,036.0

5,663.0

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

2,673.0

2,562.0

2,056.0

1,440.0

990.0

All figures in millions of U.S. Dollar, except per share items


Sales/Revenue
Cost of Goods Sold (COGS) incl. D&A
COGS exc luding D&A
Depreciation & Amortization Expense
Depreciation
Amortization of Intangibles

Research & Development


Other SG&A
EBIT (Operating Income)

Nonoperating Income (Expense) - Net

Pretax Income

Income Taxes
Equity in Earnings of Affiliates

Depreciation & Amortization Expense

FINANCIAL STATEMENTS OF BUYER

5 Year Income Statement of Microsoft Corp.

30-Jun-10

30-Jun-09

30-Jun-08

29-Jun-07

30-Jun-06

Cash & ST Investments

36,788.0

31,447.0

23,662.0

23,411.0

34,161.0

Total Acc ounts Receivable

13,014.0

11,192.0

13,589.0

11,338.0

9,316.0

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

All figures in millions of U.S. Dollar, except per share items


Assets

Inventories

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

ST Debt & Curr. Portion LT Debt

1,000.0

2,000.0

0.0

0.0

0.0

Acc ounts 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

Liabilities & Shareholders' Equity

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

4,939.0

3,746.0

0.0

0.0

0.0

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

Long-Term Debt
Deferred Taxes

Common Stoc k Par/Carry Value

62,856.0

62,382.0

62,849.0

60,557.0

59,005.0

-17,736.0

-23,793.0

-27,703.0

-31,114.0

-20,130.0

-176.0

30.0

270.0

149.0

64.0

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

Retained Earnings
Cumulative Translation Adjustment/Unrealized For. Exc h. Gain
Unrealized Gain/Loss M arketable Securities

10

FINANCIAL STATEMENTS OF BUYER

5 Year Balance Sheet of Microsoft Corp.

30-Jun-10

30-Jun-09

30-Jun-08

29-Jun-07

30-Jun-06

18,760.0

14,569.0

17,681.0

14,065.0

12,599.0

2,673.0

2,562.0

2,056.0

1,440.0

903.0

1,800.0

1,700.0

1,400.0

1,170.0

863.0

873.0

862.0

656.0

270.0

40.0

-220.0

762.0

935.0

421.0

219.0

2,199.0

2,339.0

787.0

1,181.0

1,356.0

23,412.0

20,232.0

21,459.0

17,107.0

15,077.0

661.0

-1,195.0

153.0

689.0

-673.0

-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

1,977.0

3,119.0

3,182.0

2,264.0

1,578.0

-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

-11,314.0

-15,770.0

-4,587.0

6,089.0

8,003.0

Cash Dividends Paid

-4,578.0

-4,468.0

-4,015.0

-3,805.0

-3,545.0

Change in Capital Stoc k

-8,958.0

-8,774.0

-9,039.0

-20,793.0

-17,106.0

190.0

5,746.0

0.0

0.0

0.0

55.0

33.0

120.0

54.0

89.0

-13,291.0

-7,463.0

-12,934.0

-24,544.0

-20,562.0

-39.0

-67.0

137.0

56.0

18.0

-571.0

-4,263.0

4,228.0

-603.0

1,863.0

All figures in millions of U.S. Dollar, except per share items


Operating Activities
Net Income before Extraordinaries
Deprec iation, Depletion & Amortization
Deprec iation and Depletion
Amortization of Intangible Assets
Deferred Taxes & Investment Tax Credit
Other Funds
Funds from Operations
Changes in Working Capital
Rec eivables

Investing Activities
Capital Expenditures
Net Assets from Acquisitions

Net Investing Cash Flow


Financing Activities

Issuanc e/Reduction of Debt, Net


Other Funds
Net Financing Cash Flow
Exc hange Rate Effect
Net
11 Change in Cash

FINANCIAL STATEMENTS OF BUYER

5 Year Cash Flow Statement of Microsoft Corp.

FINANCIAL STATEMENTS OF TARGET

12

30-Nov-10

30-Nov-09

28-Nov-08

30-Nov-07

30-Nov-06

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

Deprec iation

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

680.3

565.1

662.1

613.2

539.7

1,599.1

1,254.0

1,424.0

1,253.9

1,001.8

1,016.3

731.8

1,060.3

858.1

571.0

Nonoperating Inc ome (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

Financ ial Assets Impairment

--

--

--

--

--

23.3

41.3

32.1

0.6

19.7

--

--

--

--

--

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

Inc ome 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

292.7

282.4

270.3

315.5

307.8

All figures in millions of U.S. Dollar, exc ept per share items
Sales/Revenue

Research & Development


Other SG&A
EBIT (Operating Income)

Reorganization and Restruc ture Expense


Goodwill Write Off

Deprec iation & Amortization Expense

13

FINANCIAL STATEMENTS OF TARGET

5 Year Income Statement of Adobe Systems Inc.

30-Nov-10

30-Nov-09

28-Nov-08

30-Nov-07

30-Nov-06

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

--

0.0

0.0

0.0

2.4

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

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

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

All figures in millions of U.S. Dollar, except per share items


Assets
Cash & ST Investments

Long-Term Note Receivable


Intangible Assets

Liabilities & Shareholders' Equity


ST Debt & Curr. Portion LT Debt

Long-Term Debt

14

FINANCIAL STATEMENTS OF TARGET

5 Year Balance Sheet of Adobe Systems Inc.

30-Nov-10

30-Nov-09

28-Nov-08

30-Nov-07

30-Nov-06

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

240.5

216.0

218.3

269.8

171.7

1,135.6

934.6

1,406.9

1,367.5

981.1

All figures in millions of U.S. Dollar, except per share items


Operating Activities

Other Funds
Funds from Operations
Changes in Working Capital

-22.6

183.2

-126.2

71.8

-53.8

-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

169.6

119.6

111.8

132.1

83.3

-193.3

-1,582.7

-4.3

-77.2

0.0

Receivables

Investing Activities
Capital Expenditures
Net Assets from Acquisitions
Sale of Fixed Assets & Businesses
Purchase/Sale of Investments
Other Funds
Net Investing Cash Flow

32.2

0.0

0.0

13.0

0.0

-830.7

202.4

-189.3

360.9

-160.7

2.2

2.8

0.7

-81.3

439.1

-1,159.3

-1,497.1

-304.7

83.3

195.2

0.0

0.0

0.0

0.0

0.0

-710.8

-170.4

-1,403.6

-1,435.4

-854.9

479.1

636.1

350.0

0.0

0.0

16.4

12.0

32.0

85.1

80.2

-215.3

477.7

-1,021.6

-1,350.4

-774.7

12.0

14.7

-14.4

1.7

3.9

-249.6

113.0

-60.0

173.9

351.7

Financing Activities
Cash Dividends Paid
Change in Capital Stock
Issuance/Reduction of Debt, Net
Other Funds
Net Financing Cash Flow
Exchange Rate Effect
Net Change in Cash

15

FINANCIAL STATEMENTS OF TARGET

5 Year Cash Flow Statement of Adobe Systems Inc.

DISCOUNTED CASH FLOW VALUATION OF TARGET

16

Free Cash Flow Projection

FY Ending December 30

CAGR

2010

2011

2012

2013

2014

2015

Revenue
% Growth

$3,800.0
29.0%

$4,115.1
8.3%

$4,564.4
10.9%

$5,023.4
10.1%

$5,073.6
1.0%

$5,124.4
1.0%

5.6%

EBITDA
% Margin

1,309.1
34.5%

1,705.9
41.5%

1,888.9
41.4%

2,061.2
41.0%

2,081.8
41.0%

2,102.6
41.0%

5.4%

Less: Depreciation
EBITA
Tax Rate

(107.5)
1,201.6
25.0%

(65.4)
1,640.5
25.0%

(64.0)
1,824.9
25.0%

(63.8)
1,997.4
25.0%

(64.4)
2,017.4
25.0%

(65.1)
2,037.5
25.0%

Unlevered Net Income

$901.2

Plus: Depreciation
Less: Capital Expenditures
Less: Change in Working Capital
Free Cash Flow
Net Debt
FDSO

17

107.5
(137.5)
(9.5)
$861.7

($954.2)
1,312.830

$1,230.4
65.4
(133.9)
8.3
$1,170.2

$1,368.7
64.0
(159.4)
3.1
$1,276.4

$1,498.1
63.8
(175.6)
1.6
$1,387.9

$1,513.0
64.4
(202.9)
1.9
$1,376.4

$1,528.2

2011-2015

5.6%
5.6%

65.1
(205.0)
2.3
$1,390.6

4.4%

DISCOUNTED CASH FLOW VALUATION OF TARGET

Free Cash Flow Projection

DCF Valuation (2011-2015): EBITDA Multiple Method

Discount
Rate
(WACC)

Discount
Rate
(WACC)

5.0%
6.0%
7.0%

Total Enterprise Value


Terminal EBITDA Multiple
14.0x
15.0x
16.0x
$28,757.5
$30,405.0
$32,052.4
$27,531.4
$29,102.7
$30,673.9
$26,370.9
$27,870.1
$29,369.2

5.0%
6.0%
7.0%

Implied Perpetuity Growth Rate


Terminal EBITDA Multiple
14.0x
15.0x
16.0x
0.3%
0.6%
0.8%
1.2%
1.5%
1.8%
2.2%
2.5%
2.8%

(1)

Discount
Rate
(WACC)

5.0%
6.0%
7.0%

Total Equity Value


Terminal EBITDA Multiple
14.0x
15.0x
16.0x
$29,711.7
$31,359.2
$33,006.6
$28,485.6
$30,056.9
$31,628.1
$27,325.1
$28,824.3
$30,323.4
(2)

Discount
Rate
(WACC)

5.0%
6.0%
7.0%

Price Per Share


Terminal EBITDA Multiple
14.0x
15.0x
$22.6
$23.9
$21.7
$22.9
$20.8
$22.0

16.0x
$25.1
$24.1
$23.1

DCF Valuation (2011-2015): Perpetuity Growth Method


Total Enterprise Value

Discount
Rate
(WACC)

Discount
Rate
(WACC)

18

5.0%
6.0%
7.0%

Terminal Perpetuity Growth Rate


1.0%
1.5%
2.0%
$33,204.0
$37,289.8
$42,737.6
$26,524.6
$28,972.3
$32,031.9
$22,072.4
$23,679.7
$25,608.6

5.0%
6.0%
7.0%

Implied Terminal EBITDA Multiple


Terminal Perpetuity Growth Rate
1.0%
1.5%
2.0%
16.7x
19.2x
22.5x
13.4x
14.9x
16.9x
11.1x
12.2x
13.5x

Total Equity Value

Discount
Rate
(WACC)

5.0%
6.0%
7.0%

Terminal Perpetuity Growth Rate


1.0%
1.5%
2.0%
$34,158.2
$38,244.0
$43,691.8
$27,478.8
$29,926.5
$32,986.1
$23,026.6
$24,633.9
$26,562.8

5.0%
6.0%
7.0%

Price Per Share


Terminal Perpetuity Growth Rate
1.0%
1.5%
2.0%
$26.02
$29.13
$33.28
$20.93
$22.80
$25.13
$17.54
$18.76
$20.23

(2)

Discount
Rate
(WACC)

(1)

DISCOUNTED CASH FLOW VALUATION OF TARGET

Valuation Sensitivity Analysis

COMPARABLE COMPANY VALUATION OF TARGET

19

20

COMPARABLE COMPANY VALUATION OF TARGET

Industry Comparables

Capitalization Analysis
LTM as of 21-Apr-2011

Company Name

Ticker

Price
(21-Apr-2011)

Apple, Inc.
Microsoft Corp.
Autodesk, Inc.
Yahoo!, Inc.
Google, Inc.
Oracle Corp.

AAPL
MSFT
ADSK
YHOO
GOOG
ORCL

350.70
25.52
44.88
16.85
525.10
34.75

Mean
Median

166.3
39.8

Market
Value

Diluted
Shares
Outstanding

Equity
Value

Enterprise
Value

Cash
and ST
Investments

Total
Debt

Preferred
Equity

Minority
Interest

Total
Assets

Long
Term
Debt

D/
D+E

324,279.5
214,428.8
10,228.2
22,063.6
169,206.6
175,852.9

935.9
8,570.0
234.2
1,364.6
323.3
5,149.0

328,231.8
218,706.4
10,510.9
22,993.7
169,739.1
178,927.8

295,045.5
182,847.8
8,953.9
19,285.8
137,696.6
166,691.9

29,234.0
41,252.0
1,274.3
2,884.1
34,975.0
24,355.0

0.0
9,671.0
0.0
68.0
3,465.0
14,752.0

0.0
0.0
0.0
0.0
0.0
0.0

0.0
0.0
0.0
38.3
0.0
442.0

94,904.0
92,306.0
2,696.9
14,885.1
57,586.0
66,147.0

0.0
9,671.0
0.0
61.0
0.0
14,752.0

0.00x
0.17x
0.00x
0.01x
0.07x
0.29x

152,676.6
172,529.8

152,676.6
172,529.8

2,762.8
1,150.3

154,851.6
174,333.4

135,086.9
152,194.3

22,329.1
26,794.5

4,659.3
1,766.5

80.0
-

54,754.2
61,866.5

4,080.7
30.5

Margin Analysis
LTM as of 21-Apr-2011
Company Name

Ticker

Apple, Inc.
Microsoft Corp.
Autodesk, Inc.
Yahoo!, Inc.
Google, Inc.
Oracle Corp.

AAPL
MSFT
ADSK
YHOO
GOOG
ORCL

Mean
Median

Gross Margin (%)


FY-1
FY0

LTM

FY-1

39.6
78.9
88.8
54.9
62.6
72.0

39.1
78.4
89.9
58.0
64.5
68.3

26.7
34.9
7.9
7.9
35.1
36.8

66.1
67.3

39.3
80.2
89.9
58.0
64.5
71.2
67.2
67.8

66.3
66.4

24.9
30.8

EBIT Margin (%)


FY0
28.1
39.5
14.5
13.1
35.4
36.7
27.9
31.7

LTM

EBITDA Margin (%)


FY-1
FY0

LTM

FY-1

29.0
39.6
14.5
13.1
35.4
34.4

28.4
39.4
13.3
19.4
41.6
45.3

30.6
43.5
19.9
23.9
40.2
42.3

19.3
25.3
3.4
9.3
27.6
24.1

27.7
31.7

31.2
33.9

29.7
43.8
19.9
23.9
40.2
45.1
33.8
34.9

33.4
35.4

18.2
21.7

Net Margin (%)


FY0
21.5
30.0
10.9
19.5
29.0
22.9
22.3
22.2

LTM
22.4
30.8
10.9
19.5
29.0
22.4
22.5
22.4

Valuation Analysis
LTM as of 21-Apr-2011

Company Name

Ticker

Market
Value

Apple, Inc.
Microsoft Corp.
Autodesk, Inc.
Yahoo!, Inc.
Google, Inc.
Oracle Corp.

AAPL
MSFT
ADSK
YHOO
GOOG
ORCL

324,279.5
214,428.8
10,228.2
22,063.6
169,206.6
175,852.9

Mean
Median
Low
High

21

152,676.6
172,529.8
10,228.2
324,279.5

Enterprise
Value

Sales

EBITDA

295,045.5
182,847.8
8,953.9
19,285.8
137,696.6
166,691.9

87,451.0
66,690.0
1,951.8
6,324.7
29,321.0
34,353.0

26,774.0
28,987.0
387.6
1,513.0
11,777.0
14,518.0

135,086.9
152,194.3
8,953.9
295,045.5

37,681.9
31,837.0
1,951.8
87,451.0

13,992.8
13,147.5
387.6
28,987.0

LTM

Price / EPS
FY1

FY2

16.72
10.86
49.87
18.72
24.43
23.01

14.31
10.03
27.21
22.02
15.45
15.92

12.41
9.26
22.98
18.98
13.18
14.55

3.4x
2.7x
4.6x
3.0x
4.7x
4.9x

11.6x
6.9x
31.7x
23.2x
13.3x
14.1x

23.9
20.9
10.9
49.9

17.5
15.7
10.0
27.2

15.2
13.9
9.3
23.0

3.9x
4.0x
2.7x
4.9x

16.8x
13.7x
6.9x
31.7x

Price to
Book
Value

Price
to
Sales

11.0x
6.3x
23.1x
12.7x
11.7x
11.5x

5.3x
4.4x
6.3x
1.8x
3.6x
4.8x

3.8x
3.3x
5.4x
3.6x
5.8x
5.2x

12.7x
11.6x
6.3x
23.1x

4.4x
4.6x
1.8x
6.3x

4.5x
4.5x
3.3x
5.8x

Enterprise Value /
Sales
EBIT
EBITDA

COMPARABLE COMPANY VALUATION OF TARGET

Comparable Company Key Financial Statistics

Adobe Systems Inc. Key Financial Metrics


Net Debt
FDSO
Book Value of Share
EPS (FY1)
EPS(FY2)
Sales
EBIT
EBITDA

($954.2)
1,312.830
4.0
2.2
2.4
3,800.0
1,016.4
1,309.1

$
$
$
$
$
$

Implied Price per Share

Implied Total Enterprise Value


Mean

Median

Low

22,704.9
50,209.5
48,670.0
14,757.2
17,091.6
16,658.1

23,953.1
45,029.2
44,303.2
15,126.5
13,919.4
15,168.4

9,118.6
28,785.1
29,604.1
10,418.7
7,043.9
8,257.7

22

High

Mean

Median

Low

32,870.8
78,115.1
73,458.0
18,438.8
32,249.1
30,241.2

17.3
38.2
37.1
12.0
13.7
13.4

18.2
34.3
33.7
12.2
11.3
12.3

6.9
21.9
22.5
8.7
6.1
7.0

High
-

25.0
59.5
56.0
14.8
25.3
23.8

COMPARABLE COMPANY VALUATION OF TARGET

Comparable Company Valuation Range

PRECEDENT TRANSACTIONS VALUATION OF TARGET

23

Precedent Transactions

Deal

Buyer

Target

Deal Details

Year

Name

Industry

Ticker

Name

Industry

Ticker

2009
2009
2010
2009
2010

Adobe Systems
IBM Corp.
Intel Corp.
Intel Corp.
SAP AG

Software
IT Services
Hardware
Hardware
Software

ADBE
IBM
INTC
INTC
SAP

Omniture
SPSS
McAfee
Wind River
Sybase Inc.

Software
Software
Software
Software
Software

OMTR
SPSS
MFE
WIND
SYBS

Mean
Median
Low
High

Enterprise Value

EV/Revenue

EV/EBITDA

Premium

$1,800.0
$785.0
$6,800.0
$790.0
$5,800.0

4.6x
2.7x
3.4x
2.2x
4.5x

22.3x
18.0x
16.1x
21.0x
15.7x

45%
42%
60%
44%
56%

$3,195.0
$1,800.0
$785.0
$6,800.0

3.5x
3.4x
2.2x
4.6x

18.6x
18.0x
15.7x
22.3x

49%
45%
42%
60%

Adobe Systems Inc. Key Financial Metrics


Net Debt
FDSO
Revenue
EBITDA

$
$

($954.2)
1,312.830
3,800.0
1,309.1

Implied Total Enterprise Value

Implied Price per Share

Mean

Median

Low

High

Mean

Median

Low

High

13,224.0
24,375.4

12,920.0
23,563.8

8,360.0
20,552.9

17,480.0
29,192.9

10.8
19.3

10.6
18.7

7.1
16.4

14.0
23.0

24

PRECEDENT TRANSACTION VALUATION OF TARGET

Precedent Transactions Analysis

VALUATION SUMMARY

25

DCF Analysis
Low
Range
High

26

5% -7% WACC
$27,870.1
$2,534.9
$30,405.0

14x -16x Exit Multiple


$27,531.4
$3,142.4
$30,673.9

Precedent Transactions
2.2x -4.6x Revenue
$8,360.0
$9,120.0
$17,480.0

15.7x -22.3x EBITDA


$20,552.9
$8,640.1
$29,192.9

Comparable Companies
3.2x - 4.7x Revenue
$12,160.0
$5,700.0
$17,860.0

11.02x - 14.1x EBITDA


$14,426.1
$4,032.2
$18,458.3

VALUATION SUMMARY

Target Valuation Summary

FINANCIAL PROJECTIONS OF BUYER AND TARGET

27

FY Ended December 30

Total Revenue
% Growth

CAGR

2009A

2010A

2011P

2012P

2013P

2014E

2015E

$60,420.0
NA

$57,553.0
(4.7%)

$62,484.0
8.6%

$69,590.0
11.4%

$74,123.0
6.5%

$79,131.0
6.8%

$84,477.4
6.8%

$90,184.9
6.8%

2011-2015
6.7%

9,542.0
15.8%

9,593.0
16.7%

9,722.0
15.6%

12,481.6
17.9%

13,551.1
18.3%

15,796.9
20.0%

16,864.2
20.0%

18,003.6
20.0%

$50,878.0
84.2%

$47,960.0
83.3%

$52,762.0
84.4%

$57,108.4
82.1%

$60,571.9
81.7%

$63,334.1
80.0%

$67,613.2
80.0%

$72,181.3
80.0%

SG&A
% of Sales

24,530.0
40.6%

25,306.0
44.0%

25,399.0
40.6%

26,789.0
38.5%

28,519.4
38.5%

28,537.5
36.1%

30,465.6
36.1%

32,523.9
36.1%

EBITDA
% Margin

$26,348.0
43.6%

$22,654.0
39.4%

$27,363.0
43.8%

$30,319.4
43.6%

$32,052.5
43.2%

$34,796.6
44.0%

$37,147.6
44.0%

$39,657.4
44.0%

1,400.0
2.3%
656.0
1.1%
$2,056.0
3.4%

1,700.0
3.0%
862.0
1.5%
$2,562.0
4.5%

1,800.0
2.9%
873.0
1.4%
$2,673.0
4.3%

1,850.0
2.7%
835.0
1.2%
$2,685.0
3.9%

1,720.0
2.3%
800.0
1.1%
$2,520.0
3.4%

1,900.0
2.4%
906.2
1.1%
$2,806.2
3.5%

2,028.4
2.4%
906.2
1.1%
$2,934.6
3.5%

2,165.4
2.4%
906.2
1.0%
$3,071.6
3.4%

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%

EBIT
% Margin

$24,292.0
40.2%

$20,092.0
34.9%

$24,690.0
39.5%

$27,634.4
39.7%

$29,532.5
39.8%

$31,990.4
40.4%

$34,213.0
40.5%

$36,585.8
40.6%

7.3%

EBITA
% Margin

$24,948.0
41.3%

$20,954.0
36.4%

$25,563.0
40.9%

$28,469.4
40.9%

$30,332.5
40.9%

$32,896.6
41.6%

$35,119.2
41.6%

$37,492.0
41.6%

7.1%

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

COGS
% of Sales
Gross Profit
% Margin

Depreciation
% of Sales
Amortization
% of Sales
Total D&A
% of Sales
Stock-Based Comp
% of Sales

Interest (Income) / Expense


Equity (Income)
Minority Interest
Other (Income) / Expense
Income Before Taxes
Income tax
% Tax Rate
Net Income
% Margin
Diluted EPS

0.0
(1,886.0)
0.0
1,408.0

0.0
(1,171.0)
0.0
900.0

(151.0)
(801.0)
0.0
1,275.0

6.0%

6.9%

$25,426.0

$21,225.0

$25,240.0

$28,469.4

$30,332.5

$32,896.6

$35,119.2

$37,492.0

6,133.0
24.1%

5,252.0
24.7%

6,253.0
24.8%

6,798.2
23.9%

7,441.6
24.5%

8,119.6
24.7%

8,668.2
24.7%

9,253.8
24.7%

$19,293.0
31.9%

$15,973.0
27.8%

$18,987.0
30.4%

$21,671.2
31.1%

$22,890.9
30.9%

$24,777.0
31.3%

$26,451.0
31.3%

$28,238.1
31.3%

6.8%
7.5%

7.1%

$2.04

$1.81

$2.13

$2.53

$2.73

$3.01

$3.19

$3.38

9,455.100

8,823.700

8,933.300

8,554.600

8,370.600

8,240.300

8,300.000

8,350.000

$497.8
0.0
0.0

$648.7
0.0
0.0

$656.7
0.0
0.0

$635.6
0.0
0.0

$603.7
0.0
0.0

$682.5
0.0
0.0

$682.5
0.0
0.0

$682.5
0.0
0.0

Net Income - GAAP


% Margin

$18,795.2
31.1%

$15,324.3
26.6%

$18,330.3
29.3%

$21,035.6
30.2%

$22,287.2
30.1%

$24,094.5
30.4%

$25,768.5
30.5%

$27,555.6
30.6%

7.0%

Diluted EPS - GAAP

$1.99

$1.74

$2.05

$2.46

$2.66

$2.92

$3.10

$3.30

7.6%

$3,182.0
5.3%

$3,119.0
5.4%

$1,977.0
3.2%

$2,407.0
3.5%

$2,565.5
3.5%

$2,524.3
3.2%

$2,534.3
3.0%

$2,615.4
2.9%

Diluted Shares Out


Cash to GAAP Reconciliation
Amortization
Stock-Based Comp
One-Time Charges

28

FY Ending December 30

2008A

Capex
% of Sales

FINANCIAL PROJECTIONS OF BUYER AND TARGET

Income Statement Projection of Microsoft Corp.

FY Ended December 30
2008A

FY Ending December 30

CAGR

2010A

2011P

2012P

2013P

2014E

2015E

2011-2015

Total Revenue
% Growth

$3,579.9
NA

$2,945.9
(17.7%)

$3,800.0
29.0%

$4,115.1
8.3%

$4,564.4
10.9%

$5,023.4
10.1%

$5,073.6
1.0%

$5,124.4
1.0%

COGS
% of Sales
Gross Profit
% Margin

163.2
4.6%
$3,416.7
95.4%

112.5
3.8%
$2,833.4
96.2%

211.5
5.6%
$3,588.5
94.4%

194.2
4.7%
$3,920.9
95.3%

233.4
5.1%
$4,331.0
94.9%

1,175.5
23.4%
$3,847.9
76.6%

1,187.3
23.4%
$3,886.4
76.6%

1,199.1
23.4%
$3,925.2
76.6%

SG&A
% of Sales

2,086.1
58.3%

1,819.1
61.8%

2,279.4
60.0%

2,215.0
53.8%

2,442.1
53.5%

1,786.7
35.6%

1,804.6
35.6%

1,822.6
35.6%

EBITDA
% Margin

$1,330.6
37.2%

$1,014.3
34.4%

$1,309.1
34.5%

$1,705.9
41.5%

$1,888.9
41.4%

$2,061.2
41.0%

$2,081.8
41.0%

$2,102.6
41.0%

83.3
2.3%
187.0
5.2%
$270.3
7.6%

95.9
3.3%
186.5
6.3%
$282.4
9.6%

107.5
2.8%
185.2
4.9%
$292.7
7.7%

65.4
1.6%
120.0
2.9%
$185.4
4.5%

64.0
1.4%
120.0
2.6%
$184.0
4.0%

63.8
1.3%
140.0
2.8%
$203.8
4.1%

64.4
1.3%
140.0
2.8%
$204.4
4.0%

65.1
1.3%
140.0
2.7%
$205.1
4.0%

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%

EBIT
% Margin

$1,060.3
29.6%

$731.9
24.8%

$1,016.4
26.7%

$1,520.5
36.9%

$1,704.9
37.4%

$1,857.4
37.0%

$1,877.4
37.0%

$1,897.5
37.0%

5.7%

EBITA
% Margin

$1,247.3
34.8%

$918.4
31.2%

$1,201.6
31.6%

$1,640.5
39.9%

$1,824.9
40.0%

$1,997.4
39.8%

$2,017.4
39.8%

$2,037.5
39.8%

5.6%

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

Depreciation
% of Sales
Amortization
% of Sales
Total D&A
% of Sales
Stock-Based Comp
% of Sales

Interest (Income) / Expense


Equity (Income)
Minority Interest
Other (Income) / Expense
Income Before Taxes
Provision for Tax
% Tax Rate
Net Income
% Margin
Diluted EPS

(10.0)
(32.60)
0.0
60.8

(3.4)
(49.30)
0.0
22.40

(57.00)
(29.60)
0.0
13.30

5.6%

0.0%

5.4%

$1,229.1

$948.7

$1,274.9

$1,640.5

$1,824.9

$1,997.4

$2,017.4

$2,037.5

296.5
24.1%

234.8
24.7%

315.8
24.8%

391.7
23.9%

447.7
24.5%

493.0
24.7%

497.9
24.7%

502.9
24.7%

$932.6
26.1%

$713.9
24.2%

$959.1
25.2%

$1,248.8
30.3%

$1,377.2
30.2%

$1,504.4
29.9%

$1,519.4
29.9%

$1,534.6
29.9%

5.3%
5.1%

5.6%

$1.97

$1.07

$1.83

$2.19

$2.43

$2.66

$2.67

$2.67

472.800

667.800

523.400

571.100

565.700

566.000

570.000

575.000

Cash to GAAP Reconciliation


Amortization
Stock-Based Comp
One-Time Charges

$141.9
0.0
0.0

$140.4
0.0
0.0

$139.3
0.0
0.0

$91.3
0.0
0.0

$90.6
0.0
0.0

$105.4
0.0
0.0

$105.4
0.0
0.0

$105.4
0.0
0.0

Net Income - GAAP


% Margin

$790.7
22.1%

$573.6
19.5%

$819.7
21.6%

$1,157.4
28.1%

$1,286.6
28.2%

$1,399.0
27.8%

$1,414.0
27.9%

$1,429.2
27.9%

5.4%

Diluted EPS - GAAP

$1.67

$0.86

$1.57

$2.03

$2.27

$2.47

$2.48

$2.49

5.2%

$111.8
3.1%

$119.6
4.1%

$137.5
3.6%

$133.9
3.3%

$159.4
3.5%

$175.6
3.5%

$202.9
4.0%

$205.0
4.0%

Diluted Shares Out

29

2009A

Capex
% of Sales

FINANCIAL PROJECTIONS OF BUYER AND TARGET

Income Statement Projection of Adobe Systems Inc.

TRANSACTION ANALYSIS

30

Current
Price

Transaction Prices Per Adobe Systems Inc. Share

$33.48

$39.00

$40.00

$41.00

$42.00

$43.00

$44.00

$45.00

Uses
Adobe Systems Inc. Common Consideration
Adobe Systems Inc. Options Consideration
Adobe Systems Inc. Preferred Consideration
Total Equity Consideration

$44,865.7
0.0
0.0
$44,865.7

$52,262.9
0.0
0.0
$52,262.9

$53,603.0
0.0
0.0
$53,603.0

$54,943.1
0.0
0.0
$54,943.1

$56,283.2
0.0
0.0
$56,283.2

$57,623.2
0.0
0.0
$57,623.2

$58,963.3
0.0
0.0
$58,963.3

$60,303.4
0.0
0.0
$60,303.4

Adobe Systems Inc. Revolver Refinanced


Adobe Systems Inc. Convertible Debt Assumed
Adobe Systems Inc. Convertible Debt Refinanced/Retired
Adobe Systems Inc. Non-Convertible LT Debt Assumed
Adobe Systems Inc. Non-Convertible LT Debt Refinanced/Retired
Total Levered Consideration

0.0
0.0
0.0
1,513.7
0.0
$46,379.4

0.0
0.0
0.0
1,513.7
0.0
$53,776.6

0.0
0.0
0.0
1,513.7
0.0
$55,116.7

0.0
0.0
0.0
1,513.7
0.0
$56,456.8

0.0
0.0
0.0
1,513.7
0.0
$57,796.9

0.0
0.0
0.0
1,513.7
0.0
$59,136.9

0.0
0.0
0.0
1,513.7
0.0
$60,477.0

0.0
0.0
0.0
1,513.7
0.0
$61,817.1

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
30.0

0.0
0.0
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
Microsoft Corp. Options Consideration
Microsoft Corp. Preferred Consideration
Cash Consideration
Microsoft Corp. Revolver
Acquisition Debt
Adobe Systems Inc. LT Debt Assumed
Total Sources

$26,919.4
0.0
0.0
17,976.3
0.0
0.0
1,513.7
$46,409.4

$31,357.8
0.0
0.0
20,935.2
0.0
0.0
1,513.7
$53,806.6

$32,161.8
0.0
0.0
21,471.2
0.0
0.0
1,513.7
$55,146.7

$32,965.8
0.0
0.0
22,007.2
0.0
0.0
1,513.7
$56,486.8

$33,769.9
0.0
0.0
22,543.3
0.0
0.0
1,513.7
$57,826.9

$34,573.9
0.0
0.0
23,079.3
0.0
0.0
1,513.7
$59,166.9

$35,378.0
0.0
0.0
23,615.3
0.0
0.0
1,513.7
$60,507.0

$36,182.0
0.0
0.0
24,151.4
0.0
0.0
1,513.7
$61,847.1

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Sources & Uses

Acquirer Refinanced Debt


Financing Fees
Advisory Fees

Check
Cash Schedule

31

Cash Available
Microsoft Corp. Existing Cash
Adobe Systems Inc. Existing Cash
Minimum Cash Balance

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(100.0)

$36,788.0
2,468.0
(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
Financing Fees
Advisory Fees
Microsoft Corp. Debt Retired
Adobe Systems Inc. Debt Retired
Cash Needed Before Revolver
Optional Paydown of Adobe Systems Inc. Revolver
Optional Paydown of Microsoft Corp. Revolver

$17,946.3
0.0
30.0
0.0
0.0
$17,976.3
0.0
0.0

$20,905.2
0.0
30.0
0.0
0.0
$20,935.2
0.0
0.0

$21,441.2
0.0
30.0
0.0
0.0
$21,471.2
0.0
0.0

$21,977.2
0.0
30.0
0.0
0.0
$22,007.2
0.0
0.0

$22,513.3
0.0
30.0
0.0
0.0
$22,543.3
0.0
0.0

$23,049.3
0.0
30.0
0.0
0.0
$23,079.3
0.0
0.0

$23,585.3
0.0
30.0
0.0
0.0
$23,615.3
0.0
0.0

$24,121.4
0.0
30.0
0.0
0.0
$24,151.4
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 ANALYSIS

Sources and Uses of Funds

Transaction Value Per Share

$41.00

Assets
Current Assets
Cash and Equivalents
Accounts Receivable
Inventory
Deferred Income Taxes
Other Current Assets
Total Current Assets

Microsoft Corp.

Adobe Systems Inc.

25-04-11

25-04-11

Adjustments
Write-Up

Pro Forma

Financing

$36,788.0
13,014.0
740.0
0.0
5,134.0
$55,676.0

$2,468.0
554.3
0.0
0.0
193.7
$3,216.0

$7,630.0
12,394.0
1,158.0
7,754.0
0.0
0.0
1,501.0

$448.9
3,641.8
528.8
246.0
0.0
0.0
59.6

Total Assets

$86,113.0

$8,141.1

$124,949.5

Liabilities and Stockholders' Equity


Current Liabilities
Accounts Payable
Accrued Expenses
Income Taxes Payable
Deferred Revenue
Other Current Liabilities
Current Portion of Long-Term Debt
Total Current Liabilities

$4,025.0
0.0
1,074.0
0.0
20,048.0
1,000.0
$26,147.0

$52.4
0.0
53.7
0.0
953.1
8.8
$1,068.0

$4,077.4
0.0
1,127.7
0.0
21,001.1
1,008.8
$27,215.0

Revolver
Non-Convertible Debt
Convertible Debt
Deferred Income Taxes
Other Long-Term Liabilities
Total Liabilities

$0.0
4,939.0
0.0
229.0
8,623.0
$39,938.0

$0.0
1,513.7
0.0
103.1
263.9
$2,948.7

$0.0
62,856.0
0.0
0.0
(176.0)
1,231.0
(17,736.0)

$0.0
0.1
2,458.3
(3,264.3)
7.8
9.6
5,980.9

Net PP&E
Goodwill
Intangibles
Investments/Restricted Cash
Unearned Compensation
Deferred Financing Fees
Other Assets

Preferred Stock, par value


Common Stock, par value
APIC / Capital Surplus
Treasury Stock
Accum. & Other Comp. Income (Loss)
Unrealized Gain/Loss Marketable Securities
Retained Earnings

($22,007.2)

25-04-11

15.0
40,250.0
12,437.7
0.0
0.0

3,055.1

$0.0
0.0
0.0
(103.1)

$0.0
32,965.7
(2,458.3)
3,264.3
(7.8)
(9.6)
(6,010.9)

$17,248.8
13,568.3
740.0
0.0
5,327.7
$36,884.8
$8,093.9
56,285.8
14,124.5
8,000.0
0.0
0.0
1,560.6

$0.0
6,452.7
0.0
3,284.1
8,886.9
$45,838.7
$0.0
95,821.8
0.0
0.0
(176.0)
1,231.0
(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

0.000

0.000

0.000

32
Check

TRANSACTION ANALYSIS

Pro Forma Balance Sheet

FY Ended December 30
2008A

2009A

FY Ending December 30

CAGR

2010A

2011E

2012E

2013E

2014E

2015E

Total Revenue
% Growth

$63,999.9
NA

$60,498.9
(5.5%)

$66,284.0
9.6%

$73,705.1
11.2%

$78,687.4
6.8%

$84,154.4
6.9%

$89,551.0
6.9%

$95,309.3
6.9%

COGS
COGS Synergies
% of Sales
Gross Profit
% Margin

9,705.2
0.0
15.2%
$54,294.7
84.8%

9,705.5
0.0
16.0%
$50,793.4
84.0%

9,933.5
0.0
15.0%
$56,350.5
85.0%

12,675.8
0.0
17.2%
$61,029.3
82.8%

13,784.5
(25.0)
17.5%
$64,927.9
82.5%

16,972.4
(25.0)
20.1%
$67,207.0
79.9%

18,051.4
(25.0)
20.1%
$71,524.5
79.9%

19,202.7
(25.0)
20.1%
$76,131.6
79.9%

SG&A
SG&A Synergies
% of Sales

26,616.1
0.0
41.6%

27,125.1
0.0
44.8%

27,678.4
0.0
41.8%

29,004.0
0.0
39.4%

30,961.5
(50.0)
39.3%

30,324.2
(50.0)
36.0%

32,270.2
(50.0)
36.0%

34,346.6
(50.0)
36.0%

$27,678.6
43.2%

$23,668.3
39.1%

$28,672.1
43.3%

$32,025.3
43.5%

$34,016.4
43.2%

$36,932.8
43.9%

$39,304.4
43.9%

$41,835.0
43.9%

1,483.3
0.0
2.3%
843.0
0.0
1.3%
2,326.3
3.6%

1,795.9
0.0
3.0%
1,048.5
0.0
1.7%
2,844.4
4.7%

1,907.5
0.0
2.9%
1,058.2
0.0
1.6%
2,965.7
4.5%

1,915.4
1.5
2.6%
955.0
2,487.5
4.7%
5,359.4
7.3%

1,784.0
1.5
2.3%
920.0
2,487.5
4.3%
5,193.0
6.6%

1,963.8
1.5
2.3%
1,046.2
2,487.5
4.2%
5,499.0
6.5%

2,092.8
1.5
2.3%
1,046.2
2,487.5
3.9%
5,628.0
6.3%

2,230.5
1.5
2.3%
1,046.2
2,487.5
3.7%
5,765.7
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%

EBIT
% Margin

$25,352.3
39.6%

$20,823.9
34.4%

$25,706.4
38.8%

$26,665.9
36.2%

$28,823.4
36.6%

$31,433.8
37.4%

$33,676.3
37.6%

$36,069.3
37.8%

7.8%

EBITA
% Margin

$26,195.3
40.9%

$21,872.4
36.2%

$26,764.6
40.4%

$30,108.4
40.8%

$32,230.9
41.0%

$34,967.5
41.6%

$37,210.1
41.6%

$39,603.0
41.6%

7.1%

0.0
0.0
0.0
0.0

440.1
0.0
0.0
0.0

440.1
0.0
0.0
0.0

440.1
0.0
0.0
0.0

440.1
0.0
0.0
0.0

EBITDA
% Margin
Existing Depreciation
New Depreciation
% of Sales
Existing Amortization
New Amortization
% of Sales
Total D&A
% of Sales
Stock-Based Comp
% of Sales

Interest (Income) / Expense


Equity (Income)
Minority Interest
Other (Income) / Expense
Other Transaction Adjustments
Income Before Taxes
Income Tax
% Tax Rate
Pro Forma Net Income
% Margin
Pro Forma Diluted EPS
Diluted Shares Out

6.6%

5.7%

6.9%

0.0

0.0

0.0

0.0

0.0

$30,108.4

$31,790.8

$34,527.4

$36,769.9

$39,162.9

7,386.6
24.5%

7,799.4
24.5%

8,470.7
24.5%

9,020.9
24.5%

9,608.0
24.5%

$22,721.8
30.8%

$23,991.4
30.5%

$26,056.6
31.0%

$27,749.0
31.0%

$29,554.9
31.0%

6.8%
7.4%

$2.31

$2.48

$2.73

$2.89

$3.07

9,846.365

9,662.365

9,532.065

9,591.765

9,641.765

Accredition/Dulition

33

2011-2015

Microsoft Corp. Standalone Diluted EPS


$ Accretion / (Dilution)
% Accretion / (Dilution)
Incremental Pre-Tax Synergies to Breakeven

$2.53
($0.23)
(8.9%)
$2,944.1

$2.73
($0.25)
(9.2%)
$3,222.7

$3.01
($0.27)
(9.1%)
$3,451.2

$3.19
($0.29)
(9.2%)
$3,735.0

$3.38
($0.32)
(9.4%)
$4,043.9

Capex
% of Sales

$2,540.9
3.4%

$2,724.9
3.5%

$2,699.9
3.2%

$2,737.3
3.1%

$2,820.3
3.0%

6.8%

TRANSACTION ANALYSIS

Pro Forma Income Statement

Purchase Price Calculation


Common Equity Consideration
Fair Value of Unvested Options
Fair Value of Vested Options
Fair Value of Preferred Stock
Total Purchase Price

$44,865.7
0.0
0.0
0.0
$44,865.7

$52,262.9
0.0
0.0
0.0
$52,262.9

$53,603.0
0.0
0.0
0.0
$53,603.0

$54,943.1
0.0
0.0
0.0
$54,943.1

$56,283.2
0.0
0.0
0.0
$56,283.2

$57,623.2
0.0
0.0
0.0
$57,623.2

$58,963.3
0.0
0.0
0.0
$58,963.3

$60,303.4
0.0
0.0
0.0
$60,303.4

Unearned Compensation
Adjusted Purchase Price

$0.0
$44,865.7

$0.0
$52,262.9

$0.0
$53,603.0

$0.0
$54,943.1

$0.0
$56,283.2

$0.0
$57,623.2

$0.0
$58,963.3

$0.0
$60,303.4

Adjusted Purchase Price


Less: Target Book Value of Net Assets
Excess Purchase Price to Allocate

$44,865.7
(5,192.4)
$39,673.3

$52,262.9
(5,192.4)
$47,070.5

$53,603.0
(5,192.4)
$48,410.6

$54,943.1
(5,192.4)
$49,750.7

$56,283.2
(5,192.4)
$51,090.8

$57,623.2
(5,192.4)
$52,430.8

$58,963.3
(5,192.4)
$53,770.9

$60,303.4
(5,192.4)
$55,111.0

Write-Up of Tangible Assets


Write-Up of Identifiable Intangible Assets
Write-Off of Target's Existing Goodwill
Write-Off of Target's Existing DTL
Allocation to Goodwill (Before DTL Allocation)

$15.0
9,918.3
(3,641.8)
103.1
$33,278.7

$15.0
11,767.6
(3,641.8)
103.1
$38,826.6

$15.0
12,102.7
(3,641.8)
103.1
$39,831.7

$15.0
12,437.7
(3,641.8)
103.1
$40,836.7

$15.0
12,772.7
(3,641.8)
103.1
$41,841.8

$15.0
13,107.7
(3,641.8)
103.1
$42,846.8

$15.0
13,442.7
(3,641.8)
103.1
$43,851.9

$15.0
13,777.7
(3,641.8)
103.1
$44,856.9

DTL From Write-Up of Assets


DTL From Deferred Compensation
Total Goodwill Created

($2,437.0)
0.0
$35,715.7

($2,890.7)
0.0
$41,717.3

($2,972.9)
0.0
$42,804.5

($3,055.1)
0.0
$43,891.8

($3,137.3)
0.0
$44,979.0

($3,219.4)
0.0
$46,066.3

($3,301.6)
0.0
$47,153.5

($3,383.8)
0.0
$48,240.8

$39,673.3
25.0%
$9,918.3
5.0
$1,983.7

$47,070.5
25.0%
$11,767.6
5.0
$2,353.5

$48,410.6
25.0%
$12,102.7
5.0
$2,420.5

$49,750.7
25.0%
$12,437.7
5.0
$2,487.5

$51,090.8
25.0%
$12,772.7
5.0
$2,554.5

$52,430.8
25.0%
$13,107.7
5.0
$2,621.5

$53,770.9
25.0%
$13,442.7
5.0
$2,688.5

$55,111.0
25.0%
$13,777.7
5.0
$2,755.5

24.5%
$1,497.0

24.5%
$1,776.1

24.5%
$1,826.7

24.5%
$1,877.3

24.5%
$1,927.8

24.5%
$1,978.4

24.5%
$2,029.0

24.5%
$2,079.5

Write-Up of Tangible Assets


Depreciation Period (yrs)
Annual Incremental Depreciation Expense

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

$15.0
10.0
$1.5

Marginal Tax Rate


After-Tax Annual Depreciation Expense

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

24.5%
$1.1

Purchase Price Allocation

Amortization of Identifiable Intangibles


Excess of Purchase Price Over Book Value
% Allocated to Identifiable Intangibles
Write-Up of Intangible Assets
Amortization Period (yrs)
Annual Incremental Amortization Expense
Marginal Tax Rate
After-Tax Annual Amortization Expense
Depreciation of Fixed Asset Write-Up

34

TRANSACTION ANALYSIS

Purchase Price Allocation and Accounting Adjustments

Adobe Systems Inc.

Transaction Prices Per Adobe Systems Inc. Share

$33.48
Common Stock
Stock Options
ITM Convertible Securities
Total Diluted Equity Value
Net Debt
Total Enterprise Value
Premiums Analysis
Current Price
52-Week High
52-Week Low
1 Week Trading Average
1 Month Trading Average
3 Months Trading Average
6 Months Trading Average

$43,858.8
1,006.9
0.0
$44,865.7
(945.5)
$43,920.2

$40.00

$41.00

$42.00

$43.00

$44.00

$45.00

$51,090.0
1,172.9
0.0
$52,262.9
(945.5)
$51,317.4

$52,400.0
1,203.0
0.0
$53,603.0
(945.5)
$52,657.5

$53,710.0
1,233.1
0.0
$54,943.1
(945.5)
$53,997.6

$55,020.0
1,263.2
0.0
$56,283.2
(945.5)
$55,337.7

$56,330.0
1,293.2
0.0
$57,623.2
(945.5)
$56,677.7

$57,640.0
1,323.3
0.0
$58,963.3
(945.5)
$58,017.8

$58,950.0
1,353.4
0.0
$60,303.4
(945.5)
$59,357.9

16.5%
7.3%
66.3%
19.4%
12.5%
15.8%
(3.6%)

19.5%
10.0%
70.6%
22.5%
15.4%
18.7%
(1.2%)

Adobe Systems Inc.


0.0%
(7.9%)
42.8%
2.5%
(3.4%)
(0.6%)
(17.3%)

FY 2011P Revenue
FY 2012P Revenue
FY 2013P Revenue

$4,115.1
4,564.4
5,023.4

10.67x
9.62x
8.74x

12.47x
11.24x
10.22x

12.80x
11.54x
10.48x

13.12x
11.83x
10.75x

13.45x
12.12x
11.02x

13.77x
12.42x
11.28x

FY 2011P EBITDA
FY 2012P EBITDA
FY 2013P EBITDA

$1,705.9
1,888.9
2,061.2

25.7x
23.3x
21.3x

30.1x
27.2x
24.9x

30.9x
27.9x
25.5x

31.7x
28.6x
26.2x

32.4x
29.3x
26.8x

FY 2011P EBITA
FY 2012P EBITA
FY 2013P EBITA

$1,640.5
1,824.9
1,997.4

26.8x
24.1x
22.0x

31.3x
28.1x
25.7x

32.1x
28.9x
26.4x

32.9x
29.6x
27.0x

$2.19
2.43
2.66

15.3x
13.8x
12.6x

17.8x
16.0x
14.7x

18.3x
16.4x
15.0x

18.8x
16.8x
15.4x

Multiples Analysis

35

$25.52
$215,133.6
4,772.2
0.0
$219,905.8
(30,849.0)
$189,056.8

Transaction Premium Per Adobe Systems Inc. Share

$33.48
36.35
23.45
32.65
34.66
33.69
40.47

FY 2011P Cash P/E


FY 2012P Cash P/E
FY 2013P Cash P/E

Microsoft Corp.

$39.00

22.5%
12.8%
74.8%
25.6%
18.3%
21.7%
1.3%

25.4%
15.5%
79.1%
28.6%
21.2%
24.7%
3.8%

28.4%
18.3%
83.4%
31.7%
24.1%
27.6%
6.3%

Microsoft Corp.
31.4%
21.0%
87.6%
34.8%
26.9%
30.6%
8.7%

$25.52
31.58
22.73
25.62
25.71
23.24
25.62

34.4%
23.8%
91.9%
37.8%
29.8%
33.6%
11.2%

0.0%
(19.2%)
12.3%
(0.4%)
(0.7%)
9.8%
(0.4%)

14.10x
12.71x
11.55x

14.42x
13.00x
11.82x

2.72x
2.55x
2.39x

$69,590.0
74,123.0
79,131.0

33.2x
30.0x
27.5x

34.0x
30.7x
28.1x

34.8x
31.4x
28.8x

6.2x
5.9x
5.4x

$30,319.4
32,052.5
34,796.6

33.7x
30.3x
27.7x

34.5x
31.1x
28.4x

35.4x
31.8x
29.0x

36.2x
32.5x
29.7x

6.6x
6.2x
5.7x

$28,469.4
30,332.5
32,896.6

19.2x
17.3x
15.8x

19.7x
17.7x
16.2x

20.1x
18.1x
16.6x

20.6x
18.5x
16.9x

10.1x
9.3x
8.5x

$2.53
2.73
3.01

Transaction Muliple Analysis of Adobe Systems Inc. Acquisition

TRANSACTION ANALYSIS

Transaction Premium and Multiple Analysis

EPS ACCRETION/DILUTION ANALYSIS

36

Standalone
Microsoft Corp.
Transaction Value Per Share
Equity Purchase Price

$215,290.7

$39.00
$52,262.9

$40.00
$53,603.0

$41.00
$54,943.1

$42.00
$56,283.2

$43.00
$57,623.2

$44.00
$58,963.3

$45.00
$60,303.4

2.72x
2.55x

12.47x
11.24x

12.80x
11.54x

13.12x
11.83x

13.45x
12.12x

13.77x
12.42x

14.10x
12.71x

14.42x
13.00x

6.2x
5.9x

30.1x
27.2x

30.9x
27.9x

31.7x
28.6x

32.4x
29.3x

33.2x
30.0x

34.0x
30.7x

34.8x
31.4x

10.1x
9.3x

17.8x
16.0x

18.3x
16.4x

18.8x
16.8x

19.2x
17.3x

19.7x
17.7x

20.1x
18.1x

20.6x
18.5x

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

Transaction Multiples Analysis


FY 2011P Revenue
FY 2012P Revenue
FY 2011P EBITDA
FY 2012P EBITDA
FY 2011P Cash P/E
FY 2012P Cash P/E
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

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(0.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

Pro Forma Cash Net Income Without Synergies


After-Tax Synergies
Pro Forma Cash Net Income With Synergies

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

$24,266.5
56.6
$24,323.1

Diluted Shares - Treasury Method


Microsoft Corp. FY 2012P Shares Outstanding
Shares Issued for Adobe Systems Inc. Basic Shares
Total Shares Post-Transaction

8,370.600
2,047.920
10,418.520

8,370.600
2,100.431
10,471.031

8,370.600
2,152.942
10,523.542

8,370.600
2,205.453
10,576.053

8,370.600
2,257.963
10,628.563

8,370.600
2,310.474
10,681.074

8,370.600
2,362.985
10,733.585

Accretion/Dilution Summary
FY 2012P Cash EPS Without Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)
FY 2012P Cash EPS With Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)

37

All Stock

Ownership Structure Post Transaction


% Shares Owned by Microsoft Corp. Shareholders Post-Transaction
% Shares Owned by Adobe Systems Inc. Post-Transaction
Total %

$2.73

$2.33
($0.41)
(14.8%)
$5,598.2
11.2%

$2.32
($0.42)
(15.3%)
$5,788.5
11.6%

$2.31
($0.43)
(15.7%)
$5,978.8
12.0%

$2.29
($0.44)
(16.1%)
$6,169.1
12.4%

$2.28
($0.45)
(16.5%)
$6,359.4
12.7%

$2.27
($0.46)
(16.9%)
$6,549.7
13.1%

$2.26
($0.47)
(17.3%)
$6,739.9
13.5%

$2.73

$2.33
($0.40)
(14.6%)
$5,523.2
11.1%

$2.32
($0.41)
(15.1%)
$5,713.5
11.4%

$2.31
($0.42)
(15.5%)
$5,903.8
11.8%

$2.30
($0.43)
(15.9%)
$6,094.1
12.2%

$2.29
($0.45)
(16.3%)
$6,284.4
12.6%

$2.28
($0.46)
(16.7%)
$6,474.7
13.0%

$2.27
($0.47)
(17.1%)
$6,664.9
13.3%

80.3%
19.7%
100.0%

79.9%
20.1%
100.0%

79.5%
20.5%
100.0%

79.1%
20.9%
100.0%

78.8%
21.2%
100.0%

78.4%
21.6%
100.0%

78.0%
22.0%
100.0%

EPS ACCRETION/DILUTION ANALYSIS

EPS Accretion/Dilution All Stock Deal

60.0% Stock / 40.0% Cash

Standalone
Microsoft Corp.
Transaction Value Per Share
Equity Purchase Price

$215,290.7

$39.00
$52,262.9

$40.00
$53,603.0

$41.00
$54,943.1

$42.00
$56,283.2

$43.00
$57,623.2

$44.00
$58,963.3

$45.00
$60,303.4

2.72x
2.55x

12.47x
11.24x

12.80x
11.54x

13.12x
11.83x

13.45x
12.12x

13.77x
12.42x

14.10x
12.71x

14.42x
13.00x

6.2x
5.9x

30.1x
27.2x

30.9x
27.9x

31.7x
28.6x

32.4x
29.3x

33.2x
30.0x

34.0x
30.7x

34.8x
31.4x

10.1x
9.3x

17.8x
16.0x

18.3x
16.4x

18.8x
16.8x

19.2x
17.3x

19.7x
17.7x

20.1x
18.1x

20.6x
18.5x

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

Transaction Multiples Analysis


FY 2011P Revenue
FY 2012P Revenue
FY 2011P EBITDA
FY 2012P EBITDA
FY 2011P Cash P/E
FY 2012P Cash P/E
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

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

Pro Forma Cash Net Income Without Synergies


After-Tax Synergies
Pro Forma Cash Net Income With Synergies

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

$24,267.0
56.6
$24,323.6

Diluted Shares - Treasury Method


Microsoft Corp. FY 2012P Shares Outstanding
Shares Issued for Adobe Systems Inc. Basic Shares
Total Shares Post-Transaction

8,370.600
1,228.752
9,599.352

8,370.600
1,260.259
9,630.859

8,370.600
1,291.765
9,662.365

8,370.600
1,323.272
9,693.872

8,370.600
1,354.778
9,725.378

8,370.600
1,386.284
9,756.884

8,370.600
1,417.791
9,788.391

Accretion/Dilution Summary
FY 2012P Cash EPS Without Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)
FY 2012P Cash EPS With Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)

38

$1,377.2
0.0
0.0
0.0
0.0
0.0
(1.1)
0.0

Ownership Structure Post Transaction


% Shares Owned by Microsoft Corp. Shareholders Post-Transaction
% Shares Owned by Adobe Systems Inc. Post-Transaction
Total %

$2.73

$2.53
($0.21)
(7.6%)
$2,629.2
5.3%

$2.52
($0.21)
(7.9%)
$2,743.4
5.5%

$2.51
($0.22)
(8.2%)
$2,857.6
5.7%

$2.50
($0.23)
(8.5%)
$2,971.7
6.0%

$2.50
($0.24)
(8.8%)
$3,085.9
6.2%

$2.49
($0.25)
(9.1%)
$3,200.1
6.4%

$2.48
($0.26)
(9.3%)
$3,314.2
6.6%

$2.73

$2.53
($0.20)
(7.3%)
$2,554.2
5.1%

$2.53
($0.21)
(7.6%)
$2,668.4
5.3%

$2.52
($0.22)
(7.9%)
$2,782.6
5.6%

$2.51
($0.23)
(8.2%)
$2,896.7
5.8%

$2.50
($0.23)
(8.5%)
$3,010.9
6.0%

$2.49
($0.24)
(8.8%)
$3,125.1
6.3%

$2.48
($0.25)
(9.1%)
$3,239.2
6.5%

87.2%
12.8%
100.0%

86.9%
13.1%
100.0%

86.6%
13.4%
100.0%

86.3%
13.7%
100.0%

86.1%
13.9%
100.0%

85.8%
14.2%
100.0%

85.5%
14.5%
100.0%

EPS ACCRETION/DILUTION ANALYSIS

EPS Accretion/Dilution 60% Stock + 40% Cash Deal

All Cash

Standalone
Microsoft Corp.
Transaction Value Per Share
Equity Purchase Price

$215,290.7

$39.00
$52,262.9

$40.00
$53,603.0

$41.00
$54,943.1

$42.00
$56,283.2

$43.00
$57,623.2

$44.00
$58,963.3

$45.00
$60,303.4

2.72x
2.55x

12.47x
11.24x

12.80x
11.54x

13.12x
11.83x

13.45x
12.12x

13.77x
12.42x

14.10x
12.71x

14.42x
13.00x

6.2x
5.9x

30.1x
27.2x

30.9x
27.9x

31.7x
28.6x

32.4x
29.3x

33.2x
30.0x

34.0x
30.7x

34.8x
31.4x

10.1x
9.3x

17.8x
16.0x

18.3x
16.4x

18.8x
16.8x

19.2x
17.3x

19.7x
17.7x

20.1x
18.1x

20.6x
18.5x

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

$22,890.9
8,370.600
$2.73

Transaction Multiples Analysis


FY 2011P Revenue
FY 2012P Revenue
FY 2011P EBITDA
FY 2012P EBITDA
FY 2011P Cash P/E
FY 2012P Cash P/E
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

$1,377.2
(809.5)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(829.7)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(850.0)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(870.2)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(890.4)
0.0
0.0
0.0
0.0
(1.1)
0.0

$1,377.2
(910.6)
0.0
0.0
0.0
0.0
(1.1)
0.0

Pro Forma Cash Net Income Without Synergies


After-Tax Synergies
Pro Forma Cash Net Income With Synergies

$23,477.7
56.6
$23,534.3

$23,457.5
56.6
$23,514.1

$23,437.2
56.6
$23,493.8

$23,417.0
56.6
$23,473.6

$23,396.8
56.6
$23,453.4

$23,376.6
56.6
$23,433.2

$23,356.3
56.6
$23,412.9

Diluted Shares - Treasury Method


Microsoft Corp. FY 2012P Shares Outstanding
Shares Issued for Adobe Systems Inc. Basic Shares
Total Shares Post-Transaction

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

8,370.600
0.0
8,370.600

Accretion/Dilution Summary
FY 2012P Cash EPS Without Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)
FY 2012P Cash EPS With Synergies
$ Accretion / Dilution
% Accretion / Dilution
Pre-Tax Synergies to Breakeven
% of Combined Opex (Excl. Syngergies)

39

$1,377.2
(789.3)
0.0
0.0
0.0
0.0
(1.1)
0.0

Ownership Structure Post Transaction


% Shares Owned by Microsoft Corp. Shareholders Post-Transaction
% Shares Owned by Adobe Systems Inc. Post-Transaction
Total %

$2.73

$2.80
$0.07
2.6%
($777.5)
(1.6%)

$2.80
$0.07
2.5%
($750.7)
(1.5%)

$2.80
$0.07
2.4%
($723.9)
(1.4%)

$2.80
$0.06
2.3%
($697.1)
(1.4%)

$2.80
$0.06
2.2%
($670.3)
(1.3%)

$2.79
$0.06
2.1%
($643.5)
(1.3%)

$2.79
$0.06
2.0%
($616.7)
(1.2%)

$2.73

$2.81
$0.08
2.8%
($852.5)
(1.7%)

$2.81
$0.07
2.7%
($825.7)
(1.7%)

$2.81
$0.07
2.6%
($798.9)
(1.6%)

$2.80
$0.07
2.5%
($772.1)
(1.5%)

$2.80
$0.07
2.5%
($745.3)
(1.5%)

$2.80
$0.06
2.4%
($718.5)
(1.4%)

$2.80
$0.06
2.3%
($691.7)
(1.4%)

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

100.0%
0.0%
100.0%

EPS ACCRETION/DILUTION ANALYSIS

EPS Accretion/Dilution All Cash Deal

Accretion/Dilution without Synergy

Cash
%

-7.9% $ 38.00
30%
-9.1%
35%
-8.2%
40%
-7.3%
45%
-6.3%
50%
-5.3%

$ 39.00
-9.5%
-8.5%
-7.6%
-6.6%
-5.5%

Accretion/Dilution with Synergy

Offer Price
$ 40.00 $ 41.00
-9.8%
-10.2%
-8.9%
-9.2%
-7.9%
-8.2%
-6.8%
-7.1%
-5.8%
-6.1%

$ 42.00
-10.5%
-9.5%
-8.5%
-7.4%
-6.3%

Pre Tax Synergy Required to Breakeven

274339.3% $ 38.00
Cash
%

40

30%
35%
40%
45%
50%

$3,238.1
$2,876.6
$2,515.1
$2,153.5
$1,792.0

$ 39.00
$3,371.3
$3,000.3
$2,629.2
$2,258.2
$1,887.1

$ 39.00
-9.3%
-8.3%
-7.3%
-6.3%
-5.3%

Offer Price
$ 40.00 $ 41.00
-9.6%
-10.0%
-8.6%
-9.0%
-7.6%
-7.9%
-6.6%
-6.9%
-5.6%
-5.8%

$ 42.00
-10.3%
-9.3%
-8.2%
-7.2%
-6.1%

% Share Owned by Microsoft Post Transaction

Offer Price
$ 40.00 $ 41.00
$3,504.5
$3,124.0
$2,743.4
$2,362.8
$1,982.3

Cash
%

-7.6% $ 38.00
30%
-8.9%
35%
-8.0%
40%
-7.0%
45%
-6.1%
50%
-5.1%

$3,637.7
$3,247.6
$2,857.6
$2,467.5
$2,077.4

$ 42.00
$3,770.9
$3,371.3
$2,971.7
$2,572.1
$2,172.5

Cash
%

86.9% $ 38.00
30%
85.7%
35%
86.6%
40%
87.5%
45%
88.4%
50%

89.4%

$ 39.00
85.4%
86.3%
87.2%
88.1%
89.1%

Offer Price
$ 40.00 $ 41.00
85.1%
84.7%
86.0%
85.7%
86.9%
86.6%
87.9%
87.6%
88.9%

88.6%

$ 42.00
84.4%
85.4%
86.3%
87.3%
88.4%

EPS ACCRETION/DILUTION ANALYSIS

EPS Accretion/Dilution Sensitivity Analysis

PROFITABILITY CONTRIBUTION ANALYSIS

41

Microsoft Corp.

Adobe Systems Inc.

Combined

(1)

FY11

FY12

FY11

FY12

FY11

FY12

Revenue
% Growth

$69,590.0
11.4%

$74,123.0
6.5%

$4,115.1
8.3%

$4,564.4
10.9%

$73,705.1
11.2%

$78,687.4
6.8%

$0.0

EBITDA
% Margin

$30,319.4
43.6%

$32,052.5
43.2%

$1,705.9
41.5%

$1,888.9
41.4%

$32,025.3
43.5%

$33,941.4
43.1%

GAAP Net Income


% Margin

$21,035.6
30.2%

$22,287.2
30.1%

$1,157.4
28.1%

$1,286.6
28.2%

$22,193.0
30.1%

Cash Net Income


% Margin

$21,671.2
31.1%

$22,890.9
30.9%

$1,248.8
30.3%

$1,377.2
30.2%

94.4%
94.7%
94.8%
94.6%

94.2%
94.4%
94.5%
94.3%

5.6%
5.3%
5.2%
5.4%

5.8%
5.6%
5.5%
5.7%

Contribution
Revenue
EBITDA
GAAP Net Income
Cash Net Income

42

Pro Forma

Synergies
FY11

FY12

(2)

FY11

FY12

$0.0

$73,705.1
11.2%

$78,687.4
6.8%

$0.0

$75.0

$32,025.3
43.5%

$34,016.4
43.2%

$23,573.8
30.0%

$0.0

$56.6

$22,249.6
30.2%

$23,630.4
30.0%

$22,920.0
31.1%

$24,268.1
30.8%

$0.0

$56.6

$22,976.6
31.2%

$24,324.7
30.9%

100.0%
100.0%
100.0%
100.0%

100.0%
100.0%
100.0%
100.0%

PROFITABILITY CONTRIBUTION ANALYSIS

Profitability Contribution by Buyer and Target

Prepared
by
Deb Sahoo
MBA, Ross School of Business
University of Michigan, Ann Arbor

43

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