Ariba to Buy Web Software Company

Ariba Inc. on Friday agreed to buy FreeMarkets Inc. for $493 million in cash and stock, uniting two Internet-commerce software makers that only five years ago had a combined market value of $28 billion.

Ariba in Sunnyvale, Calif., sells spending-management programs and has had yearly losses since 1997. FreeMarkets makes Web auction software and this month bought the auto-parts auction business of Covisint, a venture among General Motors Corp., Ford Motor Co. and DaimlerChrysler.

Ariba shares fell 28 cents, or 7.6%, to $3.42 in Nasdaq trading. Pittsburgh-based FreeMarkets surged $1.16, or 14%, to $9.57, also on Nasdaq. Volume of 6.6 million was more than eight times FreeMarkets’ three-month daily average.

Investors in FreeMarkets would receive 2.25 shares of Ariba and $2 a share in cash, giving them 28% of the combined business, the companies said. The total offer of $10.33 a share is a 23% premium for FreeMarkets holders, based on Thursday’s closing stock prices.

The companies will fire workers and close offices, Ariba Chief Executive Robert Calderoni said. Each company has about 900 employees.

“Our customers want us to go broader and deeper, and by coming together, we can do that more quickly than if we do it alone,” Calderoni said.

Shares of FreeMarkets rose almost sixfold on their first day of trading in December 1999, and the company ended that year with a market value of almost $12 billion. The value was about $357 million Thursday. Ariba’s value declined from $16 billion in 1999 to $1 billion Thursday.

The combined company would keep the Ariba name and be led by Calderoni as CEO and chairman. FreeMarkets CEO Dave McCormick would become Ariba’s president, a title Calderoni now holds. Ariba would remain based in Sunnyvale, with a significant presence in Pittsburgh, the company said.