Ariba to Acquire FreeMarkets

Enterprise software company Ariba on Friday said it will acquire global supply-management software and services vendor FreeMarkets.

Squashing long-held rumors that Ariba Inc. would be acquired—propagated by Chairman and CEO Robert Calderoni in a televised interview last year—Ariba announced on Friday a definitive agreement to acquire FreeMarkets Inc. in a deal valued at $493 million. Under the terms of the agreement, stockholders of FreeMarkets will receive 2.25 Ariba common shares and $2.00 in cash for each outstanding FreeMarkets common share.

Ariba, of Sunnyvale, Calif., develops enterprise spend-management software and operates a business-to-business procurement hub. FreeMarkets, of Pittsburgh, Pa., provides global supply-management software and services.

This is not the first time either Ariba or FreeMarkets has been in the news this month regarding acquisitions.

Ariba announced on January 8th its intent to acquire little-known hosted services provider Alliente Inc., a privately-held procurement-business-process-outsourcing provider. The week previous FreeMarkets announced its intent to acquire the sourcing and services arm of Covisint.

Aribas acquisition of Alliente expands its existing spend-management and procurement capabilities to include managed procurement services—a subset of the business-process-outsourcing market.

FreeMarkets acquisition of Covisint likewise beefs up its services arm, though the acquisition doesnt provide much in the way of technology. It also positions FreeMarkets as a serious contender in the automotive industry; Covisint will transfer its customer contracts for auction services to FreeMarkets and adds General Motors Corp., DaimlerChrysler AG and Ford Motor Co. to its customer roster. The deal is expected to close this month.

AMR Research Inc., an analyst firm based in Boston, released a statement on the deal that characterizes Ariba, with the addition of FreeMarkets, as the powerhouse spend-management company, more in competition with IBM Procurement and SAP AGs SRM software than with a trail of smaller e-sourcing companies.

The integrated company will keep the Ariba name, as well as the executive teams from both companies. Calderoni will retain his positions as chairman and CEO.

Dave McCormick, FreeMarkets chairman and CEO, will join Aribas board, as will FreeMarkets board member Karl Newkirk. Ariba will keep its headquarters in Sunnyvale, and maintain a presence in Pittsburgh.

The goal is for both companies to merge their applications to a single platform, over time. Both companies will continue services and support on both platforms until the product integration is complete, officials said.

The deal between Ariba and FreeMarkets is expected to close mid-to-late in the second quarter, and is subject to regulatory and shareholder approval.

With the merger, Ariba expects improved operating efficiencies that amount to about $25 million, within nine months of the deal closing, officials said.

Separately, Ariba is seeking stockholder approval for a stock split of either 1-for-5 or 1-for-6, scheduled to take place around the time the merger is complete.