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i2 Shares Fall on RightWorks Deal

Shares of e-business applications provider i2 Technologies Inc. were down almost 12 percent in mid-morning trading after its announcement of a $114 million all-stock deal to acquire privately held RightWorks Corp.

San Jose, Calif.-based RightWorks sells software that helps companies set up B2B online exchanges. Its e-procurement technology will be added to Dallas-based i2's Supplier Relationship Management (SRM) suite within 60 days, i2 said.

i2 said that with the addition of RightWorks' technology, (it) "will offer the world's first collaborative e-procurement solution fully integrated to the supply chain."

The deal does not augur well for i2's relationship with B2B applications rival Ariba Inc. , based in Mountain View, Calif.

i2 and Ariba teamed up with International Business Machines Corp. last year to form a B2B Alliance which targeted the market for online exchanges. The alliance was shaky from the start however, as i2 and Ariba competed intensely in virtually every arena..

i2 stock was trading at $18.90 at mid-morning, down $2.53. RightWorks is a partner company in the Internet Capital Group network. Under the terms of the agreement, approximately 5.3 million shares of i2 common stock will be exchanged for all outstanding stock of RightWorks in a 100 percent stock-for-stock exchange valued at approximately $114 million based on i2's closing stock price yesterday of $21.438.

It's clear that the deal makes i2 more competitive with Ariba. i2 said that its integrated solution will be designed to effectively manage procurement across multiple enterprises for both direct and indirect materials, and support all types of buying models, from negotiated procurements to auctions.

i2 did say in its announcement that "as a customer-focused company, (it) will continue to integrate its solutions and support all customers with Ariba, CommerceOne, SAP and Oracle e-market or e-procurement solutions."

i2 now has "a lot of functionality offered by Ariba," AMR research analyst Bruce Richardson told Reuters, adding that "partnerships between aggressive software companies are always a zero-sum game.

RightWorks CEO Mary Coleman will not stay with the company after the transaction is complete. The future of RightWorks 400 employees wasn't addressed in the announcement.

The big loser in the deal apparently is ICG, which acquired a majority stake in RightWorks in June 2000, and in total has deployed $36 million in cash and 5.89 million shares of ICG common stock.

ICG said it expects to receive approximately 4 million shares of i2 common stock in exchange for its interest in RightWorks and expects and as the ICG stock issued for its original investment in RightWorks was valued at $128 per share, ICG "expects a non-cash loss of approximately $490 million upon closing of this transaction."

Based in Wayne, Penn., ICG is engaged in business-to-business e-commerce through a network of partner companies.