Ariba Makes Play For Manufacturing Supply Chain



By agreeing to acquire Agile Software Corp. for $2.4 billion, Ariba Inc. has taken a significant step toward entrenching itself in manufacturing enterprises and has put a further chill in its increasingly strained relationship with i2 Technologies Inc. Ariba is giving up a 20% equity stake in exchange for Agile's collaboration technology, which analysts say has been a hole in Ariba's product offering.

The all-stock deal, which awaits approval from shareholders and regulators, is expected to close in the third quarter of this year. Ariba execs say integrated products should be introduced this summer.

Adams Harkness analyst Ben Rose says the addition of Agile's manufacturing collaboration software would let Ariba expand its E-procurement software from the world of pens and paper clips into the more lucrative market for manufacturing supplies. This is exactly what Ariba needed to do and what its customers wanted, says Christopher Vroom, a Credit Suisse First Boston analyst. Vroom also says the deal is a not-so-subtle message to i2, which specializes in collaborative software. "It's definitely a broadside at i2, not a shot across the bow," he says.

In a conference call, Ariba execs downplayed the impact on the company's relationship with i2, instead focusing on the value in bringing enterprise resource planning and supply-chain processes out from behind firewalls. Larry Mueller, Ariba's president and chief operating officer, says the market is searching for a leader in bridging procurement and collaboration, and the acquisition of Agile would position Ariba as that leader. "We truly believe that one plus one equals 10 here," Mueller says.

Mueller insists the deal is not about filling any holes in Ariba's capabilities, but analysts clearly believe Ariba had to make this move. "Any E-commerce platform has to have collaboration in it," says Torrey Byles, a managing principal with Granada Research. "It's probably the sweet spot in Web commerce."

The acquisition was greeted with a mixed reaction on Wall Street: In late afternoon trading, Ariba's stock (stock: ARBA) was down nearly 5%, to $38.13, while Agile (stock: AGIL) was up 17%, to $50.13.

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