Battered VerticalNet Selling NECX - InformationWeek

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Battered VerticalNet Selling NECX

Just as prospects are growing grimmer for independent E-marketplaces, VerticalNet Inc. (stock: VERT) got a couple of early holiday presents that may help put the company back on track after it lost 96% of its market value this year.

Converge Inc. (formerly eHitex), an E-marketplace founded by Hewlett-Packard and Compaq, says it will buy VerticalNet subsidiary, an electronics-components brokerage. VerticalNet will receive $60 million and a 19.9% stake in Converge, making it the largest stakeholder in the exchange.

NECX, which VerticalNet acquired last year to supplement 58 other online marketplaces, provides a spot market for hard-to-find and surplus electronics components. It trades about $1 billion a year in parts. VerticalNet reported that NECX accounted for revenue of $38.3 million--or more than half of VerticalNet?s $73.7 million in net revenue during the third quarter. While it?s losing that revenue, according to the company, it would be able to focus on its new business model: providing technology to online exchanges, rather than operating them.

In a separate agreement, Converge signed a three-year, $107.5 million software contract with VerticalNet to make VerticalNet its core exchange platform. "We remain committed to achieving profitability," VerticalNet CEO Joseph Galli said in a teleconference Tuesday. Galli, who will join Converge?s board, said, "This deal gives us a blockbuster software opportunity and allows us to better focus our business."

VerticalNet?s E-marketplace 3.0 provides applications for online auctions and contract negotiation. A central part of the three-year agreement is that VerticalNet will provide applications that let companies trade direct materials or components that make up finished goods. The deal overshadows a previous agreement between Converge and Commerce One Inc. that provides similar applications. "We?ll work with Commerce One to define areas we can move forward with them," says Bob Lewis, CEO of Converge. "We?ll work with a lot of technology partners, but VerticalNet will provide trading backbone." He added that Converge is evaluating supply-chain applications from i2 Technologies Inc. and Manugistics Group Inc.

NECX helps Converge jump-start online transactions. Although the 20-year-old brokerage firm generates only a small percentage of its total revenue online ($2.4 million in the third quarter), the subsidiary represents 180 product classes and thousands of tech companies. Since going live with its auctions in August, Converge has generated a small number of transactions and revenue. It may also be feeling competitive pressure. Competitor e2Open (founded by IBM) and Partminer, a rival marketplace for tech-component spot buys, signed a three-year agreement in September to integrate their exchanges and share revenues on transactions.

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