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Ariba Update

I n issue 00:08:01, we reported that business-to-business (B2B) e-commerce provider, Ariba, Inc. had formed an alliance with VeriSign and American Express to deliver the first integrated card payment processing utility for online B2B transactions. Since that time, there has been some significant news concerning Ariba.

A class action suit has been filed in U.S. District Court for the Southern District of New York, on behalf of purchasers of the securities of Ariba, Inc., between June 23, 1999 and December 23, 1999. The complaint alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.

On June 23, 1999, Ariba had an IPO of 5 million of its shares of common stock at an offering price of $23 per share. Ariba filed a registration statement, which incorporated a prospectus, with the Securities Exchange Commission (SEC). The complaint alleges that the Prospectus was false and misleading because it failed to disclose that:

1. Morgan Stanley had solicited and received excessive and undisclosed commissions from certain investors in exchange for which Morgan Stanley allocated to those investors material portions of the restricted number of Ariba shares issued in connection with the Ariba IPO, and

2. Morgan Stanley had entered into agreements with customers whereby Morgan Stanley agreed to allocate Ariba shares to those customers in the Ariba IPO in exchange for which the customers agreed to purchase additional Ariba shares in the aftermarket at pre-determined prices.

In other Ariba news, Ariba and Agile Software Corporation have mutually agreed to terminate their proposed merger agreement.

"We are disappointed that adverse economic and market conditions prevent the merger with Agile from proceeding as planned," said Keith Krach, chairman and chief executive officer of Ariba. "Ariba will continue to focus on extending its leadership position in e-commerce and delivering the applications and network solutions that enable customers to automate their business processes and interactions with trading partners."

"These are clearly difficult economic times. Focusing on customer success in implementing mission-critical systems for key business processes has always served Agile well, in good times or bad. As we go forward from here, we will redouble our efforts in this area," said Bryan Stolle, chairman and chief executive officer of Agile.

Ariba also announced earnings for the quarter ended March 31, 2001 were significantly lower than the company's previous expectations. Total revenues are now expected to be approximately $90 million, which would represent approximately 125% growth over the same period last year. As a result of the revenue shortfall, the company expects a significant loss from operations of approximately $0.20 per share excluding certain non-cash charges for the quarter.

"As many others are also realizing, the slowdown in both the economy and technology spending has been much more dramatic than we had previously expected. At the end of the quarter, we experienced a large unexpected drop- off in our sales closure," said Krach. "While many customers selected Ariba's technology, spending decisions at the executive level were postponed as customers evaluated their budgets in light of the prevailing economic uncertainty."

The company also plans to reduce their workforce by approximately 700 employees, which represents about one-third of the total current employee base. "We are taking immediate and decisive action to ensure our business plans reflect today's economic realities," continued Krach.

"Under current market conditions, the predictability of our business going forward is very limited, so it's important to realign our own expense structure immediately," said Bob Calderoni, executive vice president and chief financial officer. "We believe that the actions we are initiating today will help to protect our financial position during this current economic downturn and should position us well as the economy recovers."

There is a bit of a silver lining, however. Ariba was recently named the undisputed leader in the e-procurement arena by seizing 36% of the worldwide buy-side e-procurement market segment-more than twice that of its closest competitor-and 18% of the total e-procurement market. According to the February 2001 IDC Report, "E-Procurement Applications Market Forecast and Analysis, 2000-2004," Ariba leads the market with year 2000 application license and network revenue of $375 million, over $100 million more than the closest competitor.

The report also noted that in 2000, Ariba grew faster last year than the overall market (815% as opposed to 167%), due to its powerful sales engine and key partnerships.

"There's no question that Ariba is one of the fastest-growing application vendors," noted Albert Pang, author of the report and e-commerce software research manager for IDC. "Its effective execution in the buy-side procurement applications market has given Ariba a sizable lead over others."

Ariba, Inc., is a B2B e-commerce platform provider. Through the Ariba B2B Commerce Platform, the company enables online trade, integration and collaboration between B2B marketplaces, buyers, suppliers and commerce service providers. For more information call (650)930-6200 or visit www.ariba.com.