Covisint founders take $1.26 billion stake in Commerce One
The auto industry marketplace forms an agreement that will give founders Ford Motor and General Motors a hefty stake in technology partner Commerce One worth approximately $1.26 billion.
As part of the deal, Commerce One, which came to Covisint through its partnership with GM, will provide many of the technologies to run the marketplace in return for an undisclosed amount of cash for consulting services and a share of the marketplace's recurring revenue. In addition, Commerce One will own a 2 percent equity interest in Covisint.
GM and Ford will each receive 14.4 million shares of the software maker.
Commerce One shares rose 44 cents to $44.19 in trading Tuesday morning.
The agreement makes Pleasanton, Calif.-based Commerce One a key technology partner in the auto marketplace.
Oracle, another major technology provider for the marketplace, is expected to announce a similar agreement between the database software giant and Covisint on Thursday, a Covisint representative said.
Oracle, which was brought into the venture through its alliance with Ford, is currently in a quiet period and is slated to report second-quarter earnings Thursday. Covisint said although there are some differences with Oracle's agreement, all parties are content with their deals and met certain goals.
Oracle representatives were not immediately available for comment.
Commerce One said Covisint has licensed its flagship MarketSite software allowing participants to trade goods and services over the Web. Covisint will also use Commerce One's auction and catalog content software. The company's consulting division, Commerce One Global Services, will provide both strategic and technical expertise.
As part of the financial terms of the agreement, Commerce One will be entitled to share in the revenue generated by the marketplace for about a 10-year term.
Kip Martin, an analyst at Meta Group, said the agreements mark a big win for Commerce One and indicate that the auto giants have a firm plan in place for the future
"Any way that (Commerce One) can get their claws in future revenue is a good thing," Martin said.
With the deal, "we're seeing a glimpse of (Covisint's) long-term strategy. It's great that they're taking steps in a positive direction rather than shutting its doors" like some marketplaces have recently had to do, Martin added.
Just last week, online marketplace provider Ventro shut down its Chemdex and Promedix exchanges and laid off about 234 employees.
Martin said he expects a number of smaller marketplaces will not make it because of a lack of transactions necessary to keep them afloat.
In conjunction with the transaction, Commerce One said it intends to undergo a corporate restructuring that will convert it into a holding company. Once the plan occurs, all of Commerce One's outstanding shares of common stock will be converted into shares of the holding company. As a result, Commerce One will become a wholly owned subsidiary of the new holding company, which will continue the business of Commerce One, the company said.
Commerce One's proposed corporate restructuring plan is subject to the approval of its shareholders and is expected to take place in the spring or summer of 2001.
Some of the shares issued to Ford and GM will be held in escrow and can be
released to the carmakers in December 2002, upon the satisfaction of certain conditions. Otherwise, the shares will not be released to the companies until June 2004, Commerce One said.
Covisint, which also includes DaimlerChrylser, Nissan Motor and Renault, is one of the largest exchanges announced to date. It aims to link the world's top automakers and their 30,000 suppliers over the Web and is expected to boast annual transactions valued at more than $300 billion.
The venture, which recently won approval by the Federal Trade Commission, still faces some technical challenges and is hunting for a chief executive officer.
Covisint on Monday became a corporate entity, allowing it to begin charging for participation in online auctions.
Today's move comes as valuations for some of the more prominent software makers in the busy world of online marketplaces?-Commerce One and Ariba?-have lost a hefty chunk of share value since early spring.
Most of the companies in the business-to-business market have recently seen their shares lose steam. Analysts have said they predict market caps to shrink further, along with an expected consolidation of smaller companies in the market.
Shares of Commerce One on Monday closed ahead $3 at $43.75, but the stock has fallen approximately 55 percent for the year. The company's shares had a 52-week high of $165.50. Earlier this year, both Commerce One and Ariba saw their shares steadily trading around $200.