How a rumour of a secret Microsoft meeting sent Adobe shares up 17%

Shares in software maker Adobe surged 17% overnight after a report emerged its chief executive Shantanu Narayen would be holding a “secret meeting” with Microsoft boss Steve Ballmer about a possible acquisition.

The report claims one of the main points of discussion was how Adobe and Microsoft could team up in order to curb Apple’s growth in the increasingly competitive smartphone market.

Adobe share rose as high as $US30, but calmed later in the day to end up 9%. Currently shares are trading at $US28.69, but the company was put into a brief trading halt following the publication of the rumour.

Sources have told the NYT the meeting lasted for an hour, and mainly focused on how the two companies could work together to compete against Apple – and an acquisition was one of those options. Adobe currently has a market value of about $US15 billion.

The report also claims the meetings were attended by “a small entourage of deputies” and “a number of topics” were discussed. Employees and consultants were cited as the sources.

Both companies didn’t deny the meetings took place when contacted by the NYT. An Adobe spokesperson stated that, “Adobe and Microsoft share millions of customers around the world and the CEOs of the two companies do meet from time to time”.

“However, we do not publicly comment on the timing or topics of their private meetings,” she added. Microsoft also reiterated its policy that it doesn’t comment on speculation.

Microsoft and Adobe once went head-to-head, even as recently as 2007 when the former started showing off software plug-in Silverlight, designed as a type of Flash alternative.

However, the meeting isn’t surprising, given Adobe’s recent and well-documented clashes with Apple. The largest tech company in the world has refused to allow Adobe’s Flash to run on its devices, prompting a huge divide in the smartphone community.

The report even claims the two companies discussed how Apple has placed a “blockade” on Flash for hand-held devices and whether a partnership could stop that from happening. The discussions come as Microsoft gears up to launch its Windows Phone 7 platform, in the hopes it can take away some of Apple’s market share.

While Apple recently relented on its decision to refuse developers to create apps using Flash, there is no sign Apple will relent on its decision to refuse iOS devices to support Flash material.

Adobe has been hit by some hard times recently. Its premium creative suite products, which include Photoshop and Illustrator, aren’t selling as many copies as schools prefer to save money by holding onto the current versions. Sales have also dropped in Eastern Asia, one of the company’s most lucrative markets.

Last month the company forecast sales below market expectations and shares dropped 15% as a result- despite recording a profit increase of 69% in the June quarter.