Ariba in Freefall After Its Own ‘Black Monday’

Business-to-business (B2B) software provider Ariba (Nasdaq: ARBA) announced a slew of bad news after the markets closed Monday, including massive layoffs, lowered earnings expectations, and the cancellation of a planned merger with Agile software.

Ariba stock closed Tuesday at US$4.44 — down $2.06, or 31.7 percent — afterlosing 18.8 percent Monday. The stock traded at a 52-week high of $173.50 on September 5th.

Citing poor economic conditions, Ariba said that it planned to reduce spending across all major areas, including reducing its workforce by approximately one-third, or 700 employees.

“We are taking immediate and decisive action to ensure our business plans reflect today’s economic realities,” said Keith Krach, Ariba’s chairman and chief executive officer of the Mountain View, California-based company.

“This is certainly a difficult step to take,” Krach added. “Unfortunately, like many other companies, we find ourselves having to make similar, painful moves.”

Lowered Expectations

The company said that it expects results for its fiscal second quarter, which ended March 31st, to be “significantly lower than the company’s previous expectations.”

Ariba said total revenues are now expected to be approximately $90 million, less than half of the $180.33 million analysts had been expecting.

As a result of the lowered revenue, the company now expects to lose 20 cents per share, excluding certain non-cash charges. Analysts had expected a profit of 5 cents per share.

According to Ariba, sales were weak in the U.S., where Ariba does over 75 percent of its business. Although Krach said during a conference call that the company had seen a dramatic change in information technology spending, he added that Ariba was “surprised by the magnitude of the drop during the last few days of the quarter.”

Retreat Charges

Ariba said it plans to take a series of charges, including a one-time charge of between $50 million and $75 million due to real estate investment costs. About 60 percent of the charge will be in cash payments.

Additionally, Ariba plans to take a charge of $15 million to $20 million in its fiscal third quarter due to layoffs. There will also be “significant” non-cash charges related to acquisitions.

“Today’s results are unacceptable,” said Krach. “I personally take responsibility for that. We are taking necessary and, in some cases, dramatic action to make sure we position ourselves best for the current market environment and to prepare to act aggressively when the market turns.”

Cancelled Merger

As a result of “challenging economic and market conditions” Ariba and Agile announced that they had mutually agreed to terminate a planned merger without payment of any termination fees.

The merger had been scheduled to close sometime this spring. The all-stock deal was originally valued at $2.55 billion.

As a result of Ariba’s “black Monday,” the company’s stock was downgraded by a slew of analysts including Bear Stearns, dropping from buy to attractive; Banc of America Securities, dropping from buy to market perform; and Morgan Stanley Dean Witter, dropping from strong buy to neutral.

Shareholder Suits

Poor market conditions and falling sales are not the only clouds on Ariba’s horizon. The company was hit with two class action suits by shareholders last week.

The suits, by the Little Rock, Arkansas firm of Cauley Geller Bowman & Coates and the Bala Cynwyd, Pennsylvania firm of Schiffrin & Barroway, both alleged that Ariba filed a “false and misleading” prospectus with the U.S. Securities and Exchange Commission (SEC).

The suits alleged that Ariba filed to disclose material information regarding Morgan Stanley’s underwriting practices in conjunction with Ariba’s initial public offering (IPO).