In a deal that underscores the notion that many Internet-oriented technology companies are wildly overvalued by the market, business-to-business (B2B) software giant i2 Technologies, Inc. (Nasdaq:ITWO) has agreed to purchase supply chain services company Aspect Development (Nasdaq:ASDV) for $9.3 billion (US$) in stock. Aspect reported $95 million in revenues and $8.9 million in earnings for its fiscal ended December 31, 1999.
By contrast, the merger of the Times Mirror Company with the Tribune Company — which was announced on the same day — has a combined market value of only $8 billion. However, the combined company will have annual revenues of about $7 billion and will own 11 daily newspapers, 22 television stations, four radio stations, the Chicago Cubs baseball team, and other assets.
The Dallas, Texas-based i2 said the deal, if approved by shareholders, would make it the industry’s largest B2B software and content provider. The combined company is expected to have 4,000 employees.
Aspect Development has an electronic catalog of 16 million products from 7,000 suppliers worldwide and also provides consulting and other services associated with supply chain management. The company recently signed a deal to provide the catalog for i2’s TradeMatrix electronic marketplace.
The companies expect the transaction to be completed in the third quarter.
Beneficiary of Hot Stock Market
i2 has been one of the beneficiaries of a super-hot stock market. The company, which reported revenues of $571 million and earnings of $30 million for its fiscal year ended December 31, 1999, has a staggering market capitalization of approximately $32 billion. During the last year, its stock exploded from $13 per share to a close last Friday at $208 per share.
Under the terms of the deal, i2 will pay a 35 percent premium above Aspect’s Friday closing share price. Its shareholders will own 18 percent of the company, which will become an operating subsidiary of i2. Aspect CEO Romesh Wadhwani will become vice-chairman of the company.
However, despite the corporate enthusiasm, Wall Street’s initial reaction has been somewhat sour. i2’s stock was down $20.19 per share to $187.81 in midday trading on Monday, while Aspect’s stock was up $10.12 to $95.12 per share.
More to Follow?
This agreement may spur more consolidation among B2B software providers. “In order to compete effectively with i2, people are going to have to combine,” said Tom Harwick, research director for supply-chain management at Giga Information Group.
However, Harwick said, it might not be easy for smaller companies to make similar strategic purchases. “There’s nobody out there who does what they do who has the market capitalization i2 does. They’re 22 times as big as their nearest competitor. It’s going to be difficult for their competitors to do acquisitions.”
Merger Builds on IBM Alliance
The agreement follows on the heels of an alliance announced last week by i2, IBM (NYSE: IBM) and Ariba, Inc. (Nasdaq: ARBA) to collaborate on moving business commerce to the Internet. As part of the plan, IBM said it would take stakes in both Ariba and i2. “That consortium is in a position to offer an e-business solution that’s unmatched anywhere,” Harwick commented.
i2 also announced that it is buying Supplybase, Inc., a provider of Web-based design products, for about $380 million in stock. The two purchases, said i2, will result in “substantial one-time charges, along with ongoing substantial amortization of intangibles.” The transactions will start adding to cash earnings in 2001, i2 said.