IBM, i2, Ariba Form Alliance

Updated from 9:36 a.m. EST

IBM (IBM Quote), i2 Technologies (ITWO Quote) and Ariba (ARBA Quote) agreed to form an alliance to service the hot business-to-business sector.

As part of the alliance, IBM will make minority equity investments in both i2 and Ariba. Financial terms were not disclosed.

At close Wednesday, shares of i2 were up 13%, or 21 7/16, to 190 5/8 while shares of Ariba closed at 331, up 2%, or 7 1/16. Meanwhile, IBM was at 105 7/8, up 2 7/8, or 3%.

The companies plan to offer and sell an integrated technology to meet the needs of businesses that seek to capture a part of the B2B e-commerce marketplace, which is estimated to total $1.3 trillion to $1.4 trillion by 2003. Currently, they have developed technology for three areas: full-service marketplaces, an integrated supply chain and a range of open services.

"These leaders are literally throwing all their technologies into the ring and joining forces to catalyze an already explosive marketplace," said analyst Bob Austrian of Banc of America Securities. He rates Ariba a strong buy and his firm has done no underwriting for the company.

The goal is to automate all business interactions -- including sourcing and procurement, payments, customer management, order fulfillment, logistics and manufacturing -- between trading partners.

IBM Global Services, the computer maker's consulting arm, brings its existing e-business technology to the table, while i2 will provide its TradeMatrix software which links suppliers and manufacturers and Ariba its software which makes software that processes orders on the Internet.

The alliance trumps Oracle (ORCL Quote), which announced two high-profile online procurement contracts in the last two weeks, one for the Big Three automakers -- Daimler Chrysler (DCX Quote), Ford Motor (F Quote) and General Motors (GM Quote) -- and the other for retailers Carrefour and Sears, Roebuck (S Quote).

This is likely not an exclusive agreement with Ariba, according to analyst Patrick Mason of E*Offering who covers Ariba competitor Commerce One (CMRC Quote). Some companies have already chosen to work with Commerce One's, and not Ariba's, procurement software. Therefore, if IBM Global Services wants business from those companies, it will have to support their decision in that technology and come to a similar agreement with Commerce One.

He rates Commerce One a buy and his firm has done no underwriting for the company.

Mason also pointed out that Ariba operates on a closed platform, where customers must buy its e-procurement engine. However, IBM, i2 and Ariba have trumpeted their alliance as one which offers "open" solutions for a comprehensive "open" marketplace. "Ariba is being forced to open up its marketplace, which is a new philosophy for Ariba," Mason commented.