The fat lady watching over

Ariba's

(ARBA)

plans to acquire

Agile Software

(AGIL)

hasn't started singing yet, and that's not music to Wall Street's ears.

While executives at both companies have said they are committed to the deal despite the 80% drop in Ariba's value since it was announced Jan. 29, Wall Street analysts are now concerned that it might not close because of that shrinkage.

When Ariba, which makes software that allows companies to buy supplies over the Internet, announced its intent to acquire Agile, whose software helps companies collaborate with each other, it put a $2.55 billion price tag on the deal. Now, just two months later, the deal is worth a little more than $525 million.

While the boards of both companies have given a go-ahead on the deal, a majority of Agile shareholders -- including big mutual fund managers -- will have to approve it. Institutions own nearly 80% of Agile's outstanding shares, according to

Baseline

.

"At this point, we would view the deal falling apart as being a positive for Agile shareholders," says Jay Tracey, a team portfolio manager for the

(BESLX)

Berger Select Fund, which holds Agile shares. The fund sold a large portion of its Agile stake when the deal was originally announced, but hasn't yet decided how it will vote its remaining shares. "We had more confidence in Agile than in Ariba," Tracey says. "To that extent, we voted on the deal with our feet."

Analysts are considering the possibility of the deal falling through, as well.

"You have to ask yourself if you were an Agile shareholder and you entered into this deal when Ariba's shares were at $38, and they're now at $8.25, would you vote for the deal?" says Patrick Walravens, an analyst at

Lehman Brothers

, who rates Ariba hold. "People are going to think long and hard about that." (His firm hasn't done underwriting for Agile.) Agile's shares also have dropped, falling nearly 75% since the deal was announced.

On Wednesday, Ariba shares closed down $1.81, or 18%, at a new 52-week low of $8.25. Agile shares closed down 18%, or $2.42, at $10.89.

Under the terms of the deal, Agile shareholders would receive 1.35 shares of Ariba stock for each Agile share they hold. There is no collar on the deal, and Agile would have to pay up to $110 million in penalties if its management accepted another offer at this point. The penalty wouldn't apply if shareholders turn down the deal.

The shareholder vote, originally expected for April, will now likely be delayed until May, because the

Securities and Exchange Commission

is taking longer to review the proposed merger than anticipated, says Ian Morton, an analyst at

J.P. Morgan H&Q

. In turn, that could cause Agile to report stand-alone numbers for its April quarter, while most on Wall Street expected the company's January quarter to be its last as an independent company.

An Ariba spokeswoman declined to comment for this story, citing the company's quiet period prior to releasing its quarterly results. Agile executives didn't immediately return calls for comment.

Wall Street has been concerned lately that the slowdown in technology spending might cause Ariba to miss its numbers for that period, a possibility that Ariba's executives have alluded to at recent investment conferences. If that happens, and Agile makes its numbers for a stand-alone April quarter, that could cast even more doubt on the deal.

"Right now, it looks like the deal's closing," says Morton. "But there are enough groans on the Agile shareholder side that the specter of risk that it won't is rising." (Morton has a long-term buy rating on both Ariba and Agile. His firm has done underwriting for Agile, but not for Ariba.)

Usually, institutional investors go along with companies' recommendations when it comes to votes such as this. But with the unusually steep decline in the deal's value, that could change now, especially if Agile shareholders see Ariba as bringing their stock down.

"On one side, people will say the market has tanked for all of enterprise software, so Agile's stock would have tanked anyway," says Lehman's Walravens. "But then you have people who say that Agile's fundamental business looks stronger than Ariba's, so let's keep 100% of the company for ourselves."

"The companies have done what they can do," says Morton. "The question is increasingly being placed in the hands of the shareholders."

The hands of Agile's shareholders, in the weeks and months ahead, might be pressing its management to think long and hard about the deal.