Commerce One, AppNet in merger talks

AppNet (Nasdaq: APNT) said Monday it is in merger discussions with Commerce One (Nasdaq: CMRC).

AppNet, in a statement inadvertently released Monday morning, said it signed a definitive merger agreement with Commerce One. AppNet, however, jumped the gun.

The Internet services provider had to clarify its statement after trading in both Commerce One and AppNet was halted. "AppNet is engaged in discussions and negotiations concerning a potential combination with Commerce One, but that it has not entered into any agreements at this time," the company said in a statement. AppNet also cautioned that "significant issues remain unresolved" and talks may not result in a deal.

At midday, AppNet was off 4 1/16 to 35, or 10 percent. Commerce One was down 2 3/8 to 48 3/8.

A deal between the two companies would make sense. AppNet is a services firm that offers end-to-end e-business services that range from marketing to back-office integration. Commerce One, which runs business-to-business exchanges, increasingly has to meld back-office software with its exchanges. An acquisition of AppNet could enable Commerce One to better compete with B2B players such as Ariba (Nasdaq: ARBA), i2 Technologies (Nasdaq: ITWO) and Oracle (Nasdaq: ORCL).

AppNet also would be accretive to earnings -- the company has reported profits since its 1999 IPO. Commerce One is still losing money. In the first quarter, Commerce One lost $14 million. In AppNet's first quarter, the company reported earnings of 8 cents a share, excluding charges, on sales of $44.7 million.

A Commerce One-AppNet merger could also trigger consolidation in the Net services sector. AppNet competes with Scient (Nasdaq: SCNT), Agency.com (Nasdaq: ACOM), iXL (Nasdaq: IIXL), Modem Media (Nasdaq: MMPT) among others.