Updated from 11:50 a.m. EST
, an Internet commerce company, said Thursday that it would acquire
in a stock deal it valued at $1.86 billion, a move that highlights the frenzied boom in the business-to-business online-commerce sector.
The company said it would take a one-time charge of between $10 million and $30 million in the quarter the transaction is completed. Ariba expects to complete the deal early in second-quarter 2000.
Keith Krach, Ariba's chief executive officer, said the wide range given for the charge reflected the company's conservative approach. "It's a classic in-process R&D charge that you'd have with any merger," Krach said.
Ariba, which helps large companies to coordinate purchases of everything from pencils and pens to computers over the Internet, was up 10 3/8, or 5%, to 234 7/8 midafternoon trading Thursday. (Ariba settled up 13 1/4, or 6%, to 237 1/2.)
Analysts said Ariba's acquisition of Tradex would enable the company to offer a wider array of services for companies looking to buy or sell on line. Tradex, based in Atlanta, is a privately held company that sets up on-line exchanges where suppliers and buyers can meet.
"Ariba sees this as a growing extension of their existing model," said Gavin Mlinar, an analyst with
Sands Brothers & Co.
"They have a list of suppliers and buyers and they basically need them to come together."
Sands Brothers has a buy rating on Ariba and his firm has not done any underwriting for the company.
Krach called the deal "incredible" and said it would give Ariba "clear leadership in the whole area of net markets."
Under the terms of the deal, Ariba, which is based in Mountain View, Calif., will issue about $1.86 billion worth of stock to Tradex shareholders, based on Wednesday's closing price of 224. This represents approximately 13% of Ariba's fully diluted equity value on a pro forma basis.
Analysts applauded the all-stock deal, but noted it was nearly double the original $1 billion valuation Ariba was reportedly willing to give for Tradex.
"We're in a frenzied state of valuations," said Ben Rose, an analyst at
Adams, Harkness & Hill.
"I think it shows you what you can buy with a $10 billion market cap," he added, referring to Ariba's market capitalization.
Rose rates Ariba an accumulate, a recommendation to buy, and has not done any underwriting for the company.
The run-up in Tradex's valuation was attributed in part to
astounding initial public offering last Friday. FreeMarket, an online auctioneer that went public at $48 a share, saw its shares
zoom up to $280 in their first day of trading, giving them a market capitalization of $9.5 billion.
Krach said that when compared to recent e-commerce IPOs, the Tradex acquisition looked like a bargain.
Recent deals between Ariba's competition and U.S. blue-chip companies also spurred the need for the acquisition.
"Ariba has seen
-- that's what's spawning this," Rose said. "Stodgy corporate America is saying we better get on this bandwagon -- we're overspending on our supply costs."
Over the last six weeks, General Motors and Commerce One have announced plans to create an e-commerce site, while Ford Motor has teamed up with Oracle as part of the vehicle manufacturer's strategic change in the way it conducts business with suppliers.