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GM, Ford set Net deal
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December 12, 2000: 2:16 p.m. ET
General Motors, Ford take $1.26 billion stake in Commerce One
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NEW YORK (CNNfn) - Covisint, the Big Three automakers' online parts exchange, has hammered out a $1.3 billion deal that will make Commerce One Inc. a crucial technology player in the exchange.
The move would leave General Motors Corp. (GM: Research, Estimates) and Ford Motor Co (F: Research, Estimates) with a combined 14 percent share of Commerce One (CMRC: Research, Estimates), the Pleasanton, Calif.-based company that creates electronic business-to-business markets.
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 A PIECE OF THE B-TO-B PIE
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Covisint, which also includes DaimlerChrysler AG, Nissan Motor Co. and Renault SA, is expected to handle as much as $300 billion in purchasing clout from the five auto concerns, people in the industry told the paper.
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As part of a complex transaction announced Tuesday morning, GM and Ford will receive 14.4 million Commerce One shares each. The 28.8 million shares to be issued are worth about $1.26 billion, based on Monday's close for the stock. Half of Ford's and GM's shares will be held in escrow and will be released to the auto companies in December 2002 if they meet certain targets under the Covisint agreement. Otherwise, the shares will not be released to these companies until June 2004.
In connection with the Covisint transactions, Commerce One will undergo a corporate restructuring into a holding company. Once the restructuring occurs, all of Commerce One's outstanding shares of common stock will automatically be converted into shares of the holding company common stock at a one-for-one conversion rate. As a result, Commerce One, Inc. will become a wholly owned subsidiary of the new holding company.
Commerce One to share in revenue
Covisint is using Commerce One's MarketSite software and services to manage the trading of all kinds of automobile parts and factory equipment on the exchange. Commerce One will share in the revenue generated by the exchange for an anticipated 10-year term, and the B2B software maker also received a 2 percent equity interest in the exchange.
The revenue clause could prove highly beneficial to Commerce One, since Covisint -- which also includes DaimlerChrysler AG, Nissan Motor Co. and Renault SA -- is expected to handle as much as $300 billion in purchasing clout from the five auto concerns.
Federal antitrust regulators gave a green light to the online-purchasing joint venture among the Big Three automakers last September, opening the door for similar efforts in other industries. "Despite their benefits, B2B e-Marketplaces are facing increasing scrutiny as technology, business strategies and government policies evolve," said Ruth Given, an antitrust economist at Deloitte Consulting. "Government agencies worldwide, already struggling to define the roles they'll play in Internet issues, are raising difficult questions about the way e-Markets function. In their quest to level the playing field, they can significantly impact an e-Market's operations, profits and even legal status."
Commerce One has powered more than $1.5 billion in transactions for Covisint and its trading partners -- General Motors and Daimler Chrysler – since they began testing the exchange.
In mid-afternoon trading, Commerce One was down $2.25 at $41.50. However, the stock is 49 percent higher than it was on Dec. 4.
Lehman Brothers analyst Patrick Walravens began coverage of Commerce One Tuesday with an "outperform" rating and a 12-month price target of $55.
"The big question for investors is whether Commerce One will be able to maintain its growth in light of increasing penetration rates for its core applications," Walravens wrote in a research note. "We estimate that penetration rates for Commerce One's core e-marketplace and buyside applications have reached about 24 percent. Some segments, like net market makers and industry consortia, have significantly higher penetration rates." 
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