(Bloomberg) -- Adobe Inc. officials are rushing to finish a proposal to address concerns from European competition regulators who are threatening to block the company’s record $20 billion acquisition of Figma Inc., according to people familiar with the process.
The initial offer may include a commitment not to tie Figma into Adobe’s Creative Cloud package, a bundle of the company’s products, and a potential divestment of Adobe XD, which competes with Figma, said the people, who asked not to be identified because the negotiations are confidential. Lawyers and executives from both companies are preparing to fly to Brussels for Dec. 8 meetings with the European Union to discuss the proposal.
The deal, which would preserve Adobe’s top spot in the creative software market, is under threat from regulators in both the EU and UK, who have said that the planned tie up could harm competition. US regulators, who have also been reviewing the deal for more than a year, have yet to reach a final decision on whether to try to block it.
It may be hard, however, for San Jose, California-based Adobe to win over regulators, who are still smarting from not wresting more concessions in reviews of deals involving tech giants like Alphabet Inc. and Meta Platforms Inc., according to Bloomberg Intelligence analyst Jennifer Rie. The watchdogs have expressed concerns in a number of recent mergers about the effects on future innovation.
“They are really watching for that because it was missed” previously, she said. And the UK “didn’t cave” on Microsoft Corp.’s $69 billion purchase of Activision Blizzard Inc. “until after a structural remedy offer.”
Adobe didn’t immediately respond to requests for comment. San Francisco-based Figma pointed to the statement it issued Tuesday after a UK regulator said the deal would imperil competition in product design software and reduce the development of new products.
“We remain committed to the deal, confident in the facts, and convinced our proposed combination with Adobe is a win for consumers and should be approved,” Figma said.
Adobe’s takeover of Figma is seen as a massive bet that more creative work will be done by small businesses and everyday users on the web, a market that Figma has rapidly seized. While Adobe has introduced less-expensive, streamlined products for that audience, most of its offerings are still heavyweight programs aimed at specialists.
The talks with regulators come after the EU’s competition department warned last week the deal could significantly reduce competition in the global markets for interactive product design tools and in the supply of picture and logo editing tools. A formal proposal must be filed to the EU’s antitrust department by late December, and the bloc has until Feb. 5 to issue a final decision.
And while Adobe’s immediate challenge is to appease EU watchdogs, it is also staring down a challenge in the UK. The UK Competition and Markets Authority has signaled that it will require a heavy set of divestments. It suggested that to win approval the companies would have to sell off several overlapping operations, including all-in-one product design.
Product design software — including Figma’s biggest product, Figma Design, as well as Adobe XD — is mainly used to design app and website interfaces. But the regulator also cited additional products for editing photos and logos, like Adobe’s Photoshop and Illustrator.
But the idea that Adobe would divest Photoshop or Illustrator is a “non-starter,” said Oppenheimer & Co. Analyst Brian Schwartz. “They’re not going to do that — those are core products.”
Adobe and Figma have until Dec. 19 to respond to the CMA’s findings. The firms are also scheduled to meet with the CMA in mid-December for the so-called remedy hearings where they can pitch their proposals to an independent panel. The agency will make its final decision by Feb. 25.
In the US, the Justice Department has been eying the acquisition for months but has yet to reach a final decision, according to people familiar with the probe. The companies haven’t had a final meeting with the DOJ’s top antitrust official – Jonathan Kanter – though that is likely to be scheduled in the near future. Bloomberg previously reported that the agency has been preparing a potential suit to challenge the deal – a move that would be unnecessary should EU or UK block it first.
A Justice Department spokesperson declined to comment.
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