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Q&A: i2 Technologies and Aspect Development

The largest corporate acquisition in software history needs little introduction, so suffice it to say the $9.3 billion stock-swap purchase of Aspect Development (Nasdaq: ASDV) by i2 Technologies (Nasdaq: ITWO) made plenty of waves on the market Monday. A few hours after the deal was announced, ZDII spoke Greg Brady and Bob Evans, presidents of i2 and Aspect, respectively. Excerpts from the telephone interview:

ZDII:Tell us about the genesis of this deal. When did you start talking to each other and how did it come about?

Brady: That's a good question. Interestingly enough, i2 and Aspect have had a business relationship for over a year now where we've been cross-selling each other's products, so we've been considering doing this for quite awhile. As far as how long did it actually take to physically put it off, we've been working on it for what, 10 days?

ZDII: Ten days is pretty rapid, even for Internet time.

Brady: For the largest software merger ever done, I'd say that's amazing. There were quite a few bankers and attorneys who felt that schedule was impossible to complete, but somehow we managed to pull it off.

ZDII: How did you pull it off so fast?

Brady: Well, one of the advantages we had was that we didn't have to do product due diligence because we'd already been using the product for well over a year. And then honestly, both parties had, on their own, come to the conclusion that this was something that absolutely ought to happen.

So we got the right senior members in the room and came to a handshake in less than a few hours. And then the rest was just working through the legal contract.

ZDII: Why not just continue the partership you had? What does this give you that you didn't have already?

Brady: Clearly, from a product standpoint, currently we were cross-selling about one-third of each others' products. This gives us a full suite of products. Prior to this, we were only working on the product development, product lifecycle management suite of tools. This gets us into what's called, strategic sourcing, or eSource from Aspect, which will work very tightly with our direct procurement application. And then the content is something that will offer capabilities across all of our different products running under TradeMatrix. So that was obviously product synergy.

Second was to focus our developers and our development dollars on rolling out TradeMatrix solutions faster and in an integrated fashion, because we clearly have the lead in the marketplace today, and with this merger, it's going to get even further ahead.

And then the last was the distribution opportunities here. Clearly today we have more opportunities around our B2B platform, TradeMatrix, than we have strong sales individuals to go call on. So this added an additional 70 sales people to the equation, brought us a good management team to help manage the larger business, that added depth to i2's team.

So I think those are the primary synergies.

Evans: The companies we compete with are generally larger, just in terms of sheer scale. But we've got here is, we now have 4,000 people focused on one thing, which is B2B e-commerce. And there isn't a competitor out there that has that size organization focused just on that. So we've also created a major force in the B2B e-commerce market space, and better positioned us to meet the complete needs of a customer, rather than sort of force them to piecemeal a solution together.

One way to think of this is, whether you talk about functionality of software to do design or sourcing or procurement or manufacturing or distribution or a platform for B2B e-commerce, you can get best-in-class solutions in every one of those functional areas all from one company.

ZDII: Each of your companies has relationships, to some more or less extent, with rivals of the other. How do you keep your products as open platforms, now that you've hooked up with each other?

Evans: I think at the end of the day, the customer will decide that one. If the customer is looking for that kind of relationship, I suppose that will continue.

At the same time, I think we've got a compelling value proposition for the customer, of a fully integrated suite of solutions that are best-in-class in every functional area, and they can get that, in terms of implementation and ongoing support from one organization. That's a pretty powerful message, I think.

Brady: TradeMatrix, which is the overriding B2B platform that all of these service offerings will reside in, has been architected and will continue to be architected to be a very open solution.

It's interesting to me; anybody who tries to do a B2B solution as a closed platform will never succeed, because B2B has way too many players involved in the process to make it successful. Players being customers, and their suppliers, and their customers, etc. And if you try to do that in a closed environment, it'll never work.

ZDII: How much overlap is there between your companies now?

Brady: As far as product overlap, there's virtually none. That's one of the beauties about this merger is, it's extremely complementary -- in fact, not just complementary in different areas, but actually strengthens each other's products in the areas in which we had a suite of products in the same functional area of the company.

Evans: We actually see very little overlap there. There may be some common or corporate-type functions that are a bit redundant, but given the rate of growth that both companies are experiencing right now, the redundancy of people who do those type of jobs, I think, will be very short-lived and I think we can probably even accomodate them.

The whole vision for this is not about adding the two together and figuring out how to take something out of the cost structure and justify the acquisition value. It's really about putting the two businesses together and growing them like crazy and focusing on the revenue and customer service attributes of this, and winning that way.

So there's really very little. I'm sure there might be some minor dislocations of people who work in certain areas or need to move to a different city or something, but I think that's extremely minor.

ZDII: What kind of targets do you have for the combined company's metrics, like margins, revenue growth and so forth?

Evans: The short answer on that one is, this is pretty close on this deal, so it wouldn't be appropriate for us to discuss any combined financial numbers at this point.

ZDII: When do you expect this deal to close?

Brady: That will depend on the SEC. Anywhere from as short as six, seven weeks, to as long as sixteen weeks. We don't anticipate any problem.

ZDII: When will this deal be accretive to earnings?

Brady: The deal will be accretive in 2000. If you go on and look at i2's website, you'll see the financial publishings and they'll tell you the answers to most of those questions.

Evans: Or to put it another way, if you take the analyst models that are out there today and look at them, you'll see the deal is accretive to earnings.>