NEW YORK, Jan 29 (Reuters) -
Ariba Inc., which makes software for business procurement, said on Monday it would buy Agile Software Corp. , whose software helps manufacturers share information with their suppliers and partners, in a stock swap worth more than $2 billion.
"Strategically it makes sense," Friedman, Billings, Ramsey & Co. analyst David Hilal said. "Agile is a very necessary piece to the puzzle."
Ariba's software enables manufacturers to buy custom-made materials and allows companies to buy general office supplies. With the addition of Agile, Ariba also will offer software allowing manufacturers to share information with their partners and suppliers. It will also allow manufacturers to buy standard supplies.
"This is really a watershed event for the whole B2B industry because of its strategic importance," Ariba President and Chief Operating Officer Larry Mueller told analysts in a conference call. "With the merger, we entered into the next wave of B2B commerce. It's commerce and collaboration on a single networked-based platform"
Mueller said the combination will allow Ariba to expand its market by two to three times.
"It will not only enable Ariba to serve existing customers better, but to cross-sell to Agile's customers," Credit Suisse First Boston analyst Chris Vroom said.
Mueller estimated that the global B2B commerce infrastructure market will be valued at $18 billion by 2003 and $50 billion in 2005 and Ariba wants to be the leader there.
"We truly believe that one plus one equals 10 here," he said.
Under the terms of the deal, announced before the stock market opened on Monday, Mountain View, Calif.-based Ariba will swap 1.35 of its shares for each Agile share.
There are no caps or collars to alter the deal if either stock moves radically.
Based on Friday's closing stock price of $40 for Ariba, the deal was worth $2.55 billion and valued Agile at $54 a share, a premium to its Friday closing price of $42-13/16.
Ariba shares Monday closed down $1-5/8, more than 4 percent, to $38-3/8 on the Nasdaq stock market, reducing the value of the deal to about $2.45 billion, or $51.81 per Agile share.
Agile shares closed up $7-9/16, or more than 17 percent, at $50-3/8. Shares of Agile were among the top five net gainers on the Nasdaq on Monday.
Ariba will own 80 percent of the combined company and while Agile shareholders will own the remaining 20 percent. Officials from both companies said they expect the deal to close in either April or May.
EFFECT ON i2 TECHNOLOGIES
Although company officials said the combination will not affect Ariba's relationship with i2 Technologies Inc., another supply-chain software company, analysts said the competition will heat up. Shares of i2 were off $1-1/4 at $56.
"It's not a shot across the bow (of i2). This is right in the middle, below the water line," Vroom said, noting that there was already tension in the Ariba-i2 partnership.
"Both Ariba and i2 are very ambitious in this market," Merrill Lynch First Vice President Christopher Shilakes said. "They want to control it. Both companies are building and buying and expanding in collaborative commerce."
Jennifer Tejada, i2's vice president of marketing, dismissed Ariba's claim that I2's technology operates within the protected area or "firewall" of a company's network and cannot offer collaborative functions.
"Ariba has a long way to go," she said. "They're beginning to get more into direct procurement. But Agile's really only seen in the high-tech marketplace, where we have been accepted in supply-chain management, across the board.
Ariba said it expects the acquisition of Agile to boost its earnings in its 2002 fiscal year, which begins in October.
"We see a tremendous revenue upside and therefore a tremendous earnings upside," Ariba Chief Financial Officer Bob Calderoni told Reuters. He said he expected incremental revenues to begin to show toward the end of this fiscal year.
While the acquisition may hurt Ariba's per-share earnings slightly in the next few quarters, it should have a "powerful effect on revenue and earnings in six to nine months," Shilakes said.
Analysts said that while the price being paid for Agile seemed high, Ariba did well because it was paying with stock rather than cash.
"I think it's expensive," Hilal said, "but they paid with stock. That offsets the price a little."
The price reflects Agile's strong position in its field, Shilakes said. "Agile has a piece of the high ground," he said.
Ariba Chief Executive Keith Krach said the purchase was part of a long-term strategy. He declined to say whether the company was on the acquisition trail at a time when stock prices are low.
"We look at this as a natural extension of our overall strategy," Krach told Reuters. He said Agile would be a separate Ariba division headed by Agile's current management.
The boards of both companies have approved the deal, but it is still subject to regulatory and shareholder approval, Ariba said. Thomas Weisel Partners advised Ariba on the deal.
Ariba Inc.
"Strategically it makes sense," Friedman, Billings, Ramsey & Co. analyst David Hilal said. "Agile is a very necessary piece to the puzzle."
Ariba's software enables manufacturers to buy custom-made materials and allows companies to buy general office supplies. With the addition of Agile, Ariba also will offer software allowing manufacturers to share information with their partners and suppliers. It will also allow manufacturers to buy standard supplies.
"This is really a watershed event for the whole B2B industry because of its strategic importance," Ariba President and Chief Operating Officer Larry Mueller told analysts in a conference call. "With the merger, we entered into the next wave of B2B commerce. It's commerce and collaboration on a single networked-based platform"
Mueller said the combination will allow Ariba to expand its market by two to three times.
"It will not only enable Ariba to serve existing customers better, but to cross-sell to Agile's customers," Credit Suisse First Boston analyst Chris Vroom said.
Mueller estimated that the global B2B commerce infrastructure market will be valued at $18 billion by 2003 and $50 billion in 2005 and Ariba wants to be the leader there.
"We truly believe that one plus one equals 10 here," he said.
Under the terms of the deal, announced before the stock market opened on Monday, Mountain View, Calif.-based Ariba will swap 1.35 of its shares for each Agile share.
There are no caps or collars to alter the deal if either stock moves radically.
Based on Friday's closing stock price of $40 for Ariba, the deal was worth $2.55 billion and valued Agile at $54 a share, a premium to its Friday closing price of $42-13/16.
Ariba shares Monday closed down $1-5/8, more than 4 percent, to $38-3/8 on the Nasdaq stock market, reducing the value of the deal to about $2.45 billion, or $51.81 per Agile share.
Agile shares closed up $7-9/16, or more than 17 percent, at $50-3/8. Shares of Agile were among the top five net gainers on the Nasdaq on Monday.
Ariba will own 80 percent of the combined company and while Agile shareholders will own the remaining 20 percent. Officials from both companies said they expect the deal to close in either April or May.
EFFECT ON i2 TECHNOLOGIES
Although company officials said the combination will not affect Ariba's relationship with i2 Technologies Inc.
"It's not a shot across the bow (of i2). This is right in the middle, below the water line," Vroom said, noting that there was already tension in the Ariba-i2 partnership.
"Both Ariba and i2 are very ambitious in this market," Merrill Lynch First Vice President Christopher Shilakes said. "They want to control it. Both companies are building and buying and expanding in collaborative commerce."
Jennifer Tejada, i2's vice president of marketing, dismissed Ariba's claim that I2's technology operates within the protected area or "firewall" of a company's network and cannot offer collaborative functions.
"Ariba has a long way to go," she said. "They're beginning to get more into direct procurement. But Agile's really only seen in the high-tech marketplace, where we have been accepted in supply-chain management, across the board.
Ariba said it expects the acquisition of Agile to boost its earnings in its 2002 fiscal year, which begins in October.
"We see a tremendous revenue upside and therefore a tremendous earnings upside," Ariba Chief Financial Officer Bob Calderoni told Reuters. He said he expected incremental revenues to begin to show toward the end of this fiscal year.
While the acquisition may hurt Ariba's per-share earnings slightly in the next few quarters, it should have a "powerful effect on revenue and earnings in six to nine months," Shilakes said.
Analysts said that while the price being paid for Agile seemed high, Ariba did well because it was paying with stock rather than cash.
"I think it's expensive," Hilal said, "but they paid with stock. That offsets the price a little."
The price reflects Agile's strong position in its field, Shilakes said. "Agile has a piece of the high ground," he said.
Ariba Chief Executive Keith Krach said the purchase was part of a long-term strategy. He declined to say whether the company was on the acquisition trail at a time when stock prices are low.
"We look at this as a natural extension of our overall strategy," Krach told Reuters. He said Agile would be a separate Ariba division headed by Agile's current management.
The boards of both companies have approved the deal, but it is still subject to regulatory and shareholder approval, Ariba said. Thomas Weisel Partners advised Ariba on the deal.
