SBC Communications (NYSE: SBC), the largest local telephone company in the United States, announced today that it will pay $3.9 billion (US$) in cash for Sterling Commerce (NYSE: SE).
The Columbus, Ohio-based Sterling Commerce is a leader in the market for electronic data interchange (EDI) software and is transitioning to the Internet as a B2B software and services provider. It generated revenues of $561 million in 1999 and licenses its software to 487 of the Fortune 500 companies.
While the company is evolving its software into the Internet arena, it has fallen behind both Commerce One, Inc. and Ariba, Inc. in the market for Internet-based electronic procurement software. Analysts, however, say it has time to catch up because the market for e-procurement software and services is in its infancy.
Subject to regulatory and shareholder approval, the deal is expected to close by late next month. Sterling will operate as a separate subsidiary of San Antonio, Texas-based SBC and remain in Columbus, the companies said.
“This is an outstanding addition to our already strong line-up of data services, enhancing our ability to offer our customers integrated, end-to-end business solutions worldwide,” said SBC CEO Edward Whitacre. “This instantly gives SBC the skill sets, software, products and services needed to take the lead in one of the most rapidly growing segments of the e-commerce market.”
Pooling Business Connections
SBC and Sterling Commerce say the deal will forge the strengths of the two companies into a B2B powerhouse, with an extensive network of software, solutions, distribution channels and small and large business customers.
SBC will gain a firm foothold onto the B2B landscape, estimated at $200 billion this year by International Data Group and poised to deliver $2.54 trillion by 2004. The company, which racked up 1999 revenue of $49 billion, intends to utilize its high-speed Internet connections to deliver Sterling’s solutions to businesses large and small across the United States.
Among SBC network expansion projects are a $6 billion broadband investment, which it anticipates will generate new B2B business.
SBC will also use Sterling’s solutions in-house to streamline its business processes and cut costs, the company said. Analysts say the deal makes sense for SBC and will allow it to gain instant access to the market.
SBC is offering $44.25 for each Sterling share, 40 percent above its trading price by close Friday. In early trading today, Sterling’s shares were up 37 percent to $43.50.