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EDS to shed stake in Commerce One after Ariba deal

Just weeks after teaming with Ariba, EDS today entered a five-year agreement to sell its shares in Ariba?s business-to-business rival Commerce One.

Just weeks after teaming with Ariba, EDS today entered a five-year agreement to sell its shares in Ariba?s business-to-business rival Commerce One.

In the deal with Credit Suisse First Boston, EDS will sell approximately 2.2 million shares for more than $400 million, according the Plano, Texas-based company. EDS plans to use the cash to make payments on some of its short-term debt.

Today?s announcement comes at a time when competition between Commerce One and Ariba has been fierce as the two business-to-business service firms battle for clients. The two rivals have also fought hard to strike deals with partners in the markets for consulting, systems integration and supply chain management.

Pat Burton, a financial analyst at Salomon Smith Barney, said the company's move to sell its stake in Commerce One would provide a handsome windfall for the company. Yet if it hadn?t sold, EDS? future plans could have conflicted with its equity holdings.

"They formed a company called CoNext (with Ariba) which is going to be their own (business-to-business) Internet-based provider," she said. "While it's not a direct competitor to Commerce One, it makes sense for (EDS) to not be a shareholder in the company."

The market for business-to-business services is projected to hit more than $1 trillion by 2003, according to a number of market analysis firms.

EDS invested in Commerce One last year at a pre-IPO price as part of its acquisition of SHL Systemhouse from MCI.

Since its IPO last April, Commerce One shares have jumped to a 52-week high of $331, giving the company a valuation of more than $14 million. Rival Ariba has also had a successful run in the last few months, trading as high as $211.

Two weeks ago, EDS said it will work with Ariba under a new EDS subsidiary called EDS CoNext to build business-to-business Net marketplaces, or trading exchanges. EDS will use Ariba's e-commerce software to link partners and suppliers that want to purchase goods and services over the Internet.

Yesterday, Ariba announced an alliance with Big Five consulting firm Ernst & Young to jointly sell and market business-to-business software and services to corporate customers.

Meanwhile, General Motors and Commerce One last week signed on supply chain management software developer i2 Technologies to help build an online exchange the auto giant is launching for its partners and suppliers.

EDS, which set up a $1.5 billion business-to-business venture capital fund called EDS-A.T. Kearney Ventures, is joining its competitors as it shifts its focus to the lucrative niche. Andersen consulting also recently set up a venture capital fund focused on business-to-business start-ups.