Ariba to expand Net market role with Tradex

As reported earlier, analysts said a union between the two companies could help Ariba expand its role--and its profitability--by enabling the company to become an online aggregator of goods and services for targeted groups or communities. Ariba sells software and systems that automate purchases of office equipment, maintenance supplies and services.

In a conference call held earlier today, Ariba chief executive Keith Krach said he's excited about the merger of the two companies and considers it a merger of equals. "This is a tremendous opportunity for us to partner with Net market players out there ... and an opportunity to share and synergize the [Tradex] technology with all of our existing offerings," Krach told reporters and analysts.

"We see this as a quantum leap for us," added Krach.

With the acquisition of Tradex, which matches large numbers of buyers and sellers online, Ariba said it will gain broader expertise in building online marketplaces. With about 18 customers to date, Ariba said Tradex's software powers marketplaces for large customers, such as financial services group American Express, e-commerce software maker Chemdex, computer services giant EDS, Nippon Telegraph & Telephone and others.

Under the deal, Mountain View, Calif.-based Ariba said it will issue stock worth approximately $1.86 billion, based on yesterday's closing price of 223.94, to Atlanta-based Tradex. Yesterday, Ariba was rumored to be in talks to buy Tradex for $1.65 billion. The agreement is structured as a stock-for-stock merger and will be accounted for as a purchase transaction, the companies said in a statement.

Ariba chief financial officer Edward Kinsey said the company expects to take a one-time charge in the range of $10 million to $30 million as a result of the acquisition. The charge will be reflected in the financial quarter in which the deal is finalized, he said.

The deal comes as a growing number of companies are jumping into the business-to-business market and focusing heavily on delivering online marketplaces or Net markets, especially for vertical industries.

Forrester Research expects the business-to-business industry to expand to $1.52 trillion in 2003 from about $131 billion this year.

Just yesterday, clothing maker Guess said it is building an online trading exchange that it plans to open to suppliers and business partners. Guess said it will work with Ariba rival Commerce One and business management software maker PeopleSoft to create an online marketplace for the apparel industry.

Also yesterday, German software giant SAP announced its plans to partner with business-to-business health care services provider Neoforma.com to launch an online health care marketplace. SAP also said it will start a business-to-business marketplace for material repairs and supplies for the chemical and pharmaceutical industries, partnering with chemical giant BASF as a buyer, along with health care equipment manufacturer Siemens as a seller.

In addition to adding new customers and products to its offerings, Ariba said the acquisition will add more than 180 employees to its existing workforce of more than 425 employees in the area of sales, marketing and product development.

Last month, Ariba bought Trading Dynamics, a provider of business-to-business Internet trading applications, in a stock transaction worth about $400 million. As reported, Ariba said it will gain new network services from the start-up, such as software that lets customers create any kind of auction, reverse auction or bid/ask exchange online. Ariba said Trading Dynamics applications already interoperate with Tradex software and are being implemented today by several mutual customers.

Krach said Ariba is also steadily expanding into global markets. Last night, the company closed a deal with Madrid-based telecommunications company Telefonica to set up digital marketplaces in Spain, Argentina, Mexico and Peru.

With the buy, Ariba said it plans to form a new Net markets business unit to be headed by John Baumstark, who is currently chief operating officer at Tradex. It will include more than 100 direct sales and professional services employees.

Company executives said Tradex, which also has offices in Boston, Dallas, Philadelphia, San Francisco, Washington, Milwaukee, Tampa, London and Tokyo, will continue to operate at its existing locations.

The transaction is expected to close in the second quarter of 2000, both companies said.