What was supposed to be a great quarter for Ariba (ARBA) is now turning into a giant headache for the B2B software company and its investors.
The Mountain View-based company told investors it is dropping plans to purchase San Jose-based Agile Software (Nasdaq: AGIL) a deal originally valued at $2.55 billion. Agile makes software that helps manufacturers share information with their suppliers.
In addition to killing the merger, Ariba said that second-quarter results would fall far short of expectations, and said it would have to cut about one-third of its work force to remain competitive.
“We want to be very decisive about reducing spending,” Ariba chairman and CEO Keith Krach remarked Monday during a conference call. “From our perspective, this is very sobering news.”
Krach blamed the company’s financial troubles on a large unexpected drop-off in sales at the end of the quarter.
“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,” says Krach.
Ariba also has several class action lawsuits pending against it that claim the B2B ecommerce platform and network service provider misled investors about its IPO.
Early Warning?
Ariba’s cavalcade of bad news came as a shock not only to investors but analysts as well.
“We expected them to miss their earnings for this quarter, but not to this extent,” says Jon Ekoniak, an analyst with U.S. Bancorp Piper Jaffray.
The company said its revenues would be about $90 million, or about half of Wall Street expectations of around $180 million.
Back in January, when Ariba said it announced in January it would buy Agile, Ariba’s stock was worth about $40, but it has since fallen to just above $6 per share.
“We lowered Ariba’s rating right after the merger announcement, “says Ekoniak. “Mostly because of the shareholders we talked to were not happy with the news.”
Because the pending merger with Agile was based on Ariba’s stock, Ekoniak says the deal today would only net around $450 million. Still analysts were disappointed to hear about the dropped merger talks.
“It’s going to take time for Ariba to comeback from this one,” says Ekoniak. “The market seems to be saturated with companies just like them.”
Krach promised investors Ariba would focus on being “leaner and meaner.”
