Adobe Systems is to acquire Macromedia, the company that makes the Flash web development platform, in an all-stock transaction valued at around $3.4bn (£1.88bn).
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Adobe said the combination of companies would provide customers with a more powerful set of solutions for creating, managing and delivering content.
According to Adobe, the combined companies will be able to meet a wider set of customer needs and have a significantly greater opportunity to grow into new markets, particularly in the mobile and enterprise segments.
"Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of compelling content and applications - from documents and images to audio and video," said Bruce Chizen, Adobe chief executive officer.
"By combining our development, authoring and collaboration software - along with the complementary functionality of Adobe PDF documents and Macromedia Flash - Adobe has the opportunity to bring this vision to life with an industry-defining technology platform."
Under the terms of the agreement, which has been approved by both company boards, Macromedia shareholders will receive 0.69 shares of Adobe stock for each Macromedia share they hold.
In the combined company, Chizen will continue as chief executive officer and Shantanu Narayen will remain president and chief operating officer. Stephen Elop, president and chief executive officer of Macromedia, will join Adobe as president of worldwide field operations.
Commenting on costs, Chizen said, “While we anticipate the integration team will identify opportunities for cost savings by the time the acquisition closes, the primary motivation for the two companies joining is to continue to expand and grow our business into new markets."
The acquisition is subject to shareholder and regulatory approval and is not expected to be completed until this autumn.
Adobe recently announced it was releasing a Linux-based Adobe Reader product to allow enterprises to read and manage Adobe PDF documents on Linux operating systems.
Macromedia has been busy combining its Web Flash technology with video streaming and video on demand solutions from other companies.