One Year Ago: Auto Giants Take $1.2B Stake in Commerce One

Under the terms of an agreement announced Tuesday, Covisint principals Ford and General Motors will take a combined equity stake of US$1.2 billion in e-commerce infrastructure provider Commerce One (Nasdaq: CMRC).

As part of the deal, Commerce One will share in revenues generated by the business-to-business (B2B) marketplace and gain a 2 percent equity stake in the auto industry hub. DaimlerChrysler, Covisint's other founding partner, will not get a stake in the company.

The automotive e-marketplace is already using Commerce One's infrastructure product MarketSite and its Enterprise Buyer e-procurement application. Additionally, Commerce One said that Covisint will use its auction and catalog content application.

The automakers decided to reward Commerce One because, according to Covisint's interim chief executive officer Rico Digirolamo, "Commerce One is a key partner in making Covisint a cornerstone for e-commerce in the automotive industry."

Commerce One's rival Oracle (Nasdaq: ORCL) , which has also been working on Covisint, was not similarly rewarded.

Notably, Commerce One's stock opened Tuesday at $42.06 and rose to $45.19 before dropping to $40.79, marking a 7 percent decline over Monday's close of $43.75.

Inside the Deal

When the deal was signed last Friday, Commerce One issued 14.4 million shares of its common stock to both Ford and General Motors. Based on Friday's closing price of $40.75, the 28.8 million shares issued to the automakers were worth $1.2 billion.

Half of the shares issued to each company will be held in escrow pending the satisfaction of certain agreed upon conditions. If the conditions are met, the shares will be released in December 2002. In the event the conditions are not met, the shares will not be released until June 2004.

Additionally, all of the stock issued to Ford and GM is subject to transfer restrictions for three years and will be entitled to registration rights after three years, subject to limited exceptions. The automakers have also agreed to conditions that will limit their ability to obtain additional shares of Commerce One's outstanding shares.

Revenue Sharing

The terms of the agreement make Commerce One eligible to share in any revenues generated by Covisint for 10 years. Commerce One will also receive cash compensation for strategic and technical services provided to Covisint by its consulting arm, Commerce One Global Services.

Commerce One said that it had already processed more than $1.5 billion in transactions for Covisint and its trading partners General Motors and Daimler Chrysler.

Holding Company

As part of the deal with Covisint, Commerce One will be restructured into a holding company. All of Commerce One's existing shares of common stock will be converted to shares in the new holding company at a one-for-one conversion rate. The existing Commerce One will become a wholly owned subsidiary of the new holding company, and "will continue the business of Commerce One," the company said.

As an incentive for completing the restructuring, which is subject to shareholder approval, Commerce One's equity stock in Covisint will be held in escrow and only released upon the successful completion of the restructuring.

Corporate Identity

In related news, on Monday Covisint announced that it had completed its transformation from a planning organization to a Delaware Limited Liability Corporation (LLC) known as Covisint LLC.

Originally announced in February, Covisint went live at the end of September after obtaining approval from both U.S. and German regulators. According to its founders, Covisint already has more than 250 customers, and the automakers plan to push $300 billion worth of supply and material purchases through the site annually.

Other partners in Covisint include Renault and Nissan.