It’s not hard to determine whether the steep plunge in i2 Technologies’ (ITWO) stock in early trading Monday is due more to the huge selloff that drenched the Nasdaq in red or to the reaction of investors concerned the company had paid too much to buy Aspect Development (ASDV) for $9.3 billion in stock.
While virtually all Internet stocks were down early Monday, as the profit-taking that began overnight in foreign markets swept over Wall Street, i2 dropped more than nearly anyone, reaching as low as 180 3/8 early Monday, or 13.3 percent below Friday’s closing price of 208. (By late Monday morning, however, ITWO along with other tech stocks had begun to come back, trading at 188, less than 10 percent below Friday’s close.)
Aspect’s stock, meanwhile, was heading the other way fast. Shares of ASDV opened at 94 1/16, or 11 percent above Friday’s split-adjusted closing price of $85. (ASDV’s 2-for-1 stock split went into effect Monday.) By late morning the stock had inched up to 95 1/8, a 12 percent gain.
As they did last week when security software vendor VeriSign (VRSN) announced the purchase domain registrar Network Solutions (NSOL) for $21 billion, investors are sending a message that they believe i2 Technologies is overpaying for Aspect. The purchase price of $114.40 per share is a 35 percent premium over Aspect’s split-adjusted Friday closing price.
But as with the VeriSign-Network Solutions deal, there are promising long-term possibilities here. With $571 million in revenue last year, i2 already has far more revenue than highly touted e-commerce software companies such as Ariba (ARBA) and Commerce One (CMRC). Add Aspect’s 1999 revenue of $95 million, and it’s hard to dispute the claim by both companies that their combined revenue will make them the top B2B e-commerce software provider.
Further, Aspect’s product database software complements i2’s supply-chain management software. And since the companies already have a partnership in which they bundle and sell each other’s software, integration of product and distribution lines will go smoothly.
There are some areas of concern. Aspect’s revenue last year was only 10 percent more than 1998 total. And while Aspect has been profitable for the past two years, earnings per share fell to 25 cents last year from 48 cents in 1998.
Also, based on Friday’s closing price, Aspect is valued at 52x last year’s revenue. That’s not expensive relative to any number of Internet companies, but it’s no bargain either.
Overall, though, this deal the largest software merger ever will produce an even more powerful player in a huge market.
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