E-commerce software developer

E.piphany

(EPNY)

said Wednesday that it had agreed to acquire privately held

Octane Software

for stock that it had valued at about $3.2 billion.

But Wall Street reacted negatively to the deal on a day that saw a selloff of technology stocks. E.piphany lost 25% of its stock market value, as its shares plunged 61 15/16, closing at 187. That reduced the value of the deal to $2.4 billion.

E.piphany warned in a conference call that the acquisition would increase its losses in the short term.

Under the terms of the deal, E.piphany, of San Mateo, Calif., will issue approximately 12.8 million shares of its common stock to Octane shareholders, equivalent to about 26.5% of the combined company on a fully diluted basis.

E.piphany, which makes software and tools that enable companies to track customer purchasing patterns, said the acquisition would enable it to expand its services and coordinate all customer interactions in real time. Octane, which is also based in San Mateo, provides interactive e-business customer management services.

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"Both companies have invested in building the most sophisticated, Web-based product architectures which will facilitate rapid integration of the two product suites," said Roger Siboni, president and chief executive of E.piphany.

E.piphany and Octane together have 125 customers, including

American Express

(AXP) - Get Report

,

Charles Schwab

(SCH)

and

Compaq

(CPQ)

.