SAP Deepens Ties To Commerce One

SAP's statement dispelled doubts about its links with Commerce One, whose shares had fallen sharply on speculation that their cooperation in e-commerce marketplace software might be faltering. The timing of the deal has allowed SAP to more than quadruple its existing holding for less than the $250 million it paid last year for a stake of around 4 percent.

But SAP shares dropped sharply as investors reacted nervously to a warning from Commerce One on Thursday that poor economic conditions would limit second quarter sales to between $100 million and $120 million, below analysts' forecasts of $162 million.

Early Friday, SAP shares were trading 3.5 percent lower in a slightly firmer overall market. Commerce One shares closed on Thursday at $4.26, off an all-time low of just under $3 last week.

Despite the share price fall, analysts generally welcomed the deal, which will give SAP a seat on Commerce One's board and cement a partnership that has provided a central part of the technology behind one of its core strategic applications.

"I think it's a sensible step as far as SAP's overall strategy is concerned," says HypoVereinsbank analyst Friederike Herkommer. "SAP wants to keep the Commerce One know-how and the partnership seems to work pretty well."

The two companies will hold a conference call Friday to outline the decision.

Partnership

SAP and Commerce One established the partnership last June to develop software that allows companies to order and sell goods over the Internet either with outside customers and suppliers or on their own internal marketplaces.

The technology is a key element of the German business software group's twin pillar product strategy, based around marketplaces, which allow goods and services to be exchanged online, and portals, which allow services and applications to be accessed from computer desktops.

"SAP's additional investment in Commerce One is further testament to both the strength of our alliance and the strength of Commerce One's e-commerce capabilities," said Commerce One CEO Mark Hoffmann in a statement.

SAP says the terms of the deal limited it from increasing its stake past 23 percent and a spokesman says SAP co-CEO Hasso Plattner had repeatedly said he is not interested in a full acquisition of Commerce One.

"It does make sense in strategic terms," says one London-based analyst. "They don't want to own the whole thing, but they don't want anyone else to own it either."

The company last week halted a steep slide in its stock by seeking to reassure investors that its relationship with SAP was intact and analysts says the deal appeared to be timed to support Commerce One's share price.

Once a high flyer of the business-to-business software sector, Commerce One has seen its share price tumble from a split-adjusted high of about $78.50 in September 2000 as pressure from a flagging U.S. economy and a slowdown in IT spending have taken their toll.

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