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Sold to FreeMarkets: Covisint Auction Services

Supply management software maker FreeMarkets has agreed to acquire the auction services and customer base of struggling online service provider Covisint.

Financial terms of the deal were not made public. Covisint said it would transfer its customer contracts for auction services to FreeMarkets, providing Pittsburgh-based FreeMarkets additional revenue over the next three years and another tool for the company's supply management software.

Southfield, Mich.'s Covisint was created as a business-to-business (B2B) marketplace during the zenith of the e-commerce boom in February 2000 by DaimlerChrysler, General Motors, Ford, Nissan and Renault, all of which wanted to streamline manufacturing operations and offer cost-savings to the supply chain.

At the time, Ford spokesperson Alice Miles said Covisint was created to clear up a lot of inefficiencies in manufacturing, citing excess inventory and poor communication.

One Covisint high point included a $1.26 billion deal with fellow marketplace provider Commerce One. But the company struggled, failing to gain traction as the dot-com bubble burst and a shakeout rippled through the B2B market.

Covisint CEO Bob Paul said shedding the company's auction services is a logical step on Covisint's path to focus on providing supplier management portals and data messaging services.

"We began building our auction service business when the technology was in its infancy and it is now time to turn it over to someone that has sourcing technology and expertise as a core competency," Paul said in a press release.

Should the deal succeed, FreeMarkets would significantly bolster its sourcing software and services to the automotive industry, serving Covisint founders DaimlerChrysler, General Motors and Ford under long-term agreements. According to a company press release, FreeMarkets has helped companies in the automotive industry source more than $20 billion in goods and services.

FreeMarkets would also gain the right to provide its solutions to Covisint auction services customers, such as Mitsubishi, Nissan, Renault, PSA Peugeot and Fiat. FreeMarkets, which expects the purchase to close in early January, will hire certain Covisint auction services employees.

FreeMarkets, which debuted as a public company in 1999, is a dot-com bust survivor. But the company has seen some executive turnover of late, with Chief Operating Officer David Becker leaving in October to form an investment firm and Chief Financial Officer Joan Hooper jumping ship the same month for Dell.