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Ariba to buy FreeMarkets for $493 million

The software maker will hand over $493 million in stock and cash for the business-to-business services company, a deal that underlines the rapid consolidation in the enterprise software industry.

Ariba announced on Friday that it plans to purchase FreeMarkets in a deal valued at $493 million, bolstering its position in the market for online business software services.

Through the acquisition, Ariba will be able to blend its suite of enterprise spend-management software and services with FreeMarkets' auction-based supply-chain management service.

"By combining our unique domain knowledge and expertise in sourcing and supply management with Ariba's strong spend-management capabilities, we can provide companies with a truly comprehensive set of software and services that will enable them to drive greater savings and efficiencies across their operations," said Dave McCormick, FreeMarket's chief executive, in a statement.

The companies, once merged, will operate under the Ariba name and deliver products as previously planned. But over time, their applications will be amalgamated onto a single platform.

The move is the latest sign of rapid consolidation in the online business software and services industry. Earlier this month, Ariba, which provides pay-as-you-go software and services, unveiled plans to buy hosting services partner Alliente. And a few weeks ago, FreeMarkets reported it intended to buy the auction services of Covisint, a struggling online marketplace for the auto industry.

Ariba, a Wall Street darling during the B2B boom, said it will pay 2.25 shares of its stock for every share of FreeMarkets, as well as $2 in cash. The deal is expected to close by the end of the second quarter, pending shareholder and regulatory approval.

Ariba said it will conduct a reverse stock split of either 1-for-5 shares, or 1-for-6 shares, once the merger is completed.

McCormick will join Mountain View, Calif.-based Ariba as its president and a director. Bob Calderoni, Ariba chief executive and chairman, will retain his titles.

In addition, Ariba announced that its fiscal 2004 first-quarter revenue will come in below analyst estimates of $54.7 million. It expects revenue to be between $52 million to $53 million.

The software maker also said it expects to report net income of $6 million, or 2 cents a share. However, those results include a one-time benefit of $5 million. Analysts are forecasting the company to report a profit of 1 cent a share, according to a poll conducted by Thomson.

FreeMarkets shares rose $1.29, or roughly 15 percent, to $9.70 in early trading on Friday. Shares of Ariba, meanwhile, were down in early trading by 22 cents, or nearly 6 percent, to $3.48.