29 January 2003 Ariba is indulging in some retail therapy. The e-procurement software supplier, which is being investigated by the US Securities and Exchange Commission (SEC), has acquired Goodex, a Hamburg, Germany-based supplier of online auction and sourcing services.
Ariba’s acquisition will undoubtedly provoke comparisons with rival FreeMarkets. Goodex will boost Ariba’s supplier sourcing services with about 50 experienced European sourcing consultants, bringing Ariba into more direct competition with FreeMarkets’ business model of providing sourcing consultancy services alongside auction software.
The acquisition, for an undisclosed sum, comes at a difficult time for Ariba. Since December 2002, the company has been in the process of re-stating its financial statements for the period between March 2000 and June 2002, after an internal audit unearthed misreported cash transactions between senior executives and employee stock options.
According to the company, the re-statement regards a $10 million (€9.2m) payment made in March 2001 by Ariba’s chairman and co-founder Keith Krach to Larry Mueller, its president and chief operating officer at the time. There is also a question mark over the $1.2 million (€1.1m) cost of chartered air services provided to Mueller by Krach between September 2000 and July 2001.
Originally regarded as personal payments between the two executives, they should really have been disclosed and recorded as company expenses, admits Ariba.
The restatement also covers an accounting error in the way in which Ariba booked stock options granted to a “limited number of individuals” during acquisitions of other companies in 2000. These alone will increase recorded expenses by $7.5 million (€6.9m) when correctly accounted for, and will combine with the $10 million (€9.2m) and $1.2 million (€1.1m) transactions to make a significant impact on the company’s net income.
Already there have been at least two class action lawsuits filed against Ariba by US law firms Green &Jigarjian LLP and Cauley Geller Bowman &Coates LLP on behalf of shareholders, regarding the restatements.
Moreover, the SEC has taken an ‘informal’ interest in the investigation and Ariba is facing the threat of de-listing because it missed the deadline for filing its full-year 2002 financial statement.
Despite all this bad news, Ariba shares on the Nasdaq stock exchange have not suffered. It closed at $2.88 (€2.65) on 27 January 2003, well above the $1 floor for automatic de-listing and only 15 cents lower than the price on 2 January, the first day of trading after the restatement was initially announced.