Ariba, FreeMarkets Complete Merger

Spend management specialist lays out solutions roadmap for combined company

Spend management specialist lays out solutions roadmap for combined company

Sunnyvale, CA — June 29, 2004 — Ariba and FreeMarkets announced the completion of their merger as their shareholders gave the final go-ahead for the union in separate meetings on Monday, and the combined laid out its solutions roadmap this week, with a focus on spend management.

The merger is expected to close on Thursday, subject to satisfaction of customary closing conditions. At that time, Ariba also intends to effect a six-for-one reverse stock split, which was also approved by Ariba's stockholders and by its board of directors.

The merger brings together Ariba's portfolio of spend management applications, covering spend analysis, sourcing, procurement and contract management, with FreeMarkets' tools and services for strategic sourcing.

The integrated company will retain the Ariba name and will be led by a combined leadership team. The new Ariba will have more than 1,600 employees, a presence in 21 countries and a marquee customer list of 500-plus companies, including more than half of the companies listed on the FORTUNE 100.

Ariba chief executive Bob Calderoni will retain his positions as CEO and chairman of the board, while FreeMarkets President and CEO Dave McCormick will be Ariba's president. McCormick will also join the company's board of directors, along with former FreeMarkets board member Karl E. Newkirk.

Headquarters for the new company will be in Ariba's old stomping grounds of Sunnyvale, California, while the company will maintain a significant presence in FreeMarkets' traditional base of Pittsburgh, where more than 500 employees will remain on the payroll.

In a statement, Calderoni asserted that, with the market pressures of the demand global economy keeping pressure on companies to control their spend, increasing numbers of enterprises will need spend management solution to accelerate their bottom-line results. "We believe Ariba will now be in a strong competitive position to serve this market need," he said, asserting that Ariba can now position itself as the only company focused exclusively on spend management.

The two companies initially announced their plans to merge in January, and McCormick said in the statement announcing the merger that Ariba and FreeMarkets had spent the intervening five months developing a plan to integrate their respective offerings. "We will now move forward with an even stronger focus and flexibility to deliver the customized sourcing and procurement expertise that leading companies across the globe are seeking," he added.

Solutions Strategy for Merged Company

In an interview, Sundar Raghaven, vice president of solutions strategy with Ariba, said that the merged company's solutions set would cover six separate areas, ranging from spend management strategy; visibility into spend process and performance issues; and sourcing (where FreeMarkets has traditionally been strong); to procurement (Ariba's strong suit as an early e-procurement player); supplier management to manage the supply base from a performance, quality and delivery response perspective; and managed services, with outsourced procurement services.

"In a typical day in the new Ariba," Raghaven said, "we will be sourcing somewhere around $270 million to $280 million, we will be talking with about 1,000 suppliers on a daily basis, about $600 million to $700 million in spend will be going through our procurement system, we'll be initiativing about 150 different projects and we'll have 400 to 500 commodity experts."

Raghaven said that Ariba shaped its solutions strategy based on focus groups with senior-level finance, procurement and supply management executives at some 70 of its customers. "In going through these focus groups, we learned that companies want three things, and they want them from one vendor," he said.

First, companies want speed, the ability to apply spend management to a range of categories quickly to produce bottom line results. "They are not willing to wait 12 or 24 months," Raghaven said. "They want results now."

Second, they want coverage of a wide range of spend management processes, a broad selection of different commodities and markets, and multiple countries where these enterprises are operating across the globe. And third, customers are looking for sustainability in the results, so that spend management activities produce a lasting impact.

"Speed, coverage and sustainability become the three core tenets of what companies are looking for in terms of spend management," Raghaven said, adding that the combined Ariba and FreeMarkets solution sets address those requirements. "By providing coverage of those three areas, integrated into products, services and solutions, we will now be able to address the critical requirements that our customers have for spend management."