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SAP Increases Stake In Commerce One

SAP increases its stake in Commerce One as Commerce One issues an earnings warning.
SAP AG is spending $220 million to $250 million to increase its stake in its E-business software partner Commerce One Inc., a move that should help improve Commerce One's bleak financial picture. Commerce One warned Friday that revenue for its second quarter would be $100 million to $120 million, well below Wall Street expectations of $161 million.

In a joint press conference Friday, which was followed by Commerce One's earnings warning, the two companies said SAP is increasing its ownership of Commerce One to 20% with rights to increase its stake to 23%. SAP also gains a seat on the Commerce One board. The investment is expected to close in July or August pending regulatory approval and requires the reorganization of Commerce One as a holding company whose assets include Commerce One software products.

In the press conference, Mark Hoffman, chairman and CEO of Commerce One, blamed the company's lackluster showing on the downturn in the economy and slowing sales in Europe. Hoffman said Commerce One's sales pipeline was healthy for the quarter, which ends Saturday, but the rate at which deals closed during the period slowed. He blamed that on a change in demand for his company's software from public marketplaces, which had sales cycles of three to six months, to private exchanges, which have sales cycles of six to nine months. Commerce One stock has lost 80% of its value this year, trading recently in the $5 range.

Hasso Plattner, SAP co-chairman, says the two companies will continue to jointly develop applications for public and private marketplaces that incorporate SAP enterprise resource planning, customer-relationship management, supply-chain management, and other applications.

SAP's investment marks the second time in a year that SAP has made a major investment in Commerce One. Last summer, the German-American software company invested $250 million in Commerce One stock as part of a technology partnership that integrated SAP's enterprise resource planning and other enterprise software with Commerce One's marketplace infrastructure and E-procurement software.

Josh Greenbaum, a principal at Enterprise Applications Consulting, says SAP's even larger stake in Commerce One is indicative of how reliant on SAP the exchange software builder has become since the software market for public exchanges has all but dried up. Commerce One would have a difficult time competing in the still-growing private exchange market without its deep integration with SAP's enterprise applications. Greenbaum says he believes SAP will continue to acquire larger pieces of Commerce One. "I think the end game is going to be total ownership of Commerce One by SAP," he says. "Deals with SAP are already Commerce One's largest revenue stream and some day soon Commerce One as a separate entity will stop making sense."