SBC Communications Inc., a provider of local and long-distance telephone services, said Tuesday that it has made a cash tender offer valued at $3.9 billion to buy Sterling Commerce Inc. in a bid to gain a foothold in business-to-business electronic commerce.
Sterling Commerce runs a private network linking 45,000 corporations that send payments and related information to one another. Acquiring the Columbus, Ohio, company would "instantly" give San Antonio-based SBC "the skill sets, software, products, and services needed to take the lead in one of the most rapidly growing segments of the e-commerce market," said Edward E. Whitacre Jr., chairman and chief executive officer of SBC in a statement.
Sterling stockholders would get $44.25 a share in the deal, which is expected to be completed by late March.
Sterling would get additional resources to help it shift from running proprietary networks toward networks that use Internet technology.
Brad Sharp, president and chief operating officer of Sterling, said Internet-related operations represent nearly 40% of his company's revenues, which were $561 million in 1999. Its Internet revenues are growing 75% per quarter, he said.
"SBC is committed to investing more in Sterling Commerce's business," Mr. Sharp said. "Today's market is a land grab, and we have to invest to grab as much land as possible - and we have to do it right now."
Sterling runs the nation's largest value-added network, ahead of those run by Harbinger Corp. and General Electric Information Service. These proprietary networks, also called VANs, use electronic data interchange technology to connect corporate trading partners. EDI facilitates the exchange of business documents such as purchase orders and invoices in standard computer formats.
Value-added networks have struggled in recent years to incorporate the Internet, a much cheaper networking medium. EDI is also losing popularity as newer connectivity protocols, such as eXtensible Markup language gain ground.
Jeffery Baker, an analyst at SunTrust Equitable Securities, said that EDI technology will not necessarily go away in the near term, but that value-added networks' days are numbered.
"Right now, you are probably looking at three years before they go away," Mr. Baker said. "What companies are doing is keeping their VAN, but overlaying Web EDI on top of it."
In addition to its network services for corporations, Sterling Commerce has sold EDI translation software and other payments software to all but one of the largest 100 U.S. financial institutions.
Lon Bough, vice president of investor relations at Sterling, said financial services are a small but "highly profitable and healthy part" of his company's business.
"One thing that SBC has made very clear is that they intend for this business to continue. They want to further it, not slice it up or change it dramatically," he said.
Mr. Baker said many telephone companies are diversifying by developing Internet products and services for corporations and consumers. "Sterling has 45,000 customers," he said, "so they clearly have to be looking at that as a great opportunity."
Sterling would be a separate subsidiary within SBC's global markets group.