Commerce One To Account For AppNet Deal As A Purchase
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WASHINGTON -(Dow Jones)- Because it plans to account for its pending
acquisition of AppNet Inc. (APNT) under the purchase method of
accounting, Commerce One Inc. (CMRC) warned in a filing Thursday with
the Securities and Exchange Commission that its net losses could
increase in the "foreseeable future."
For its second quarter ended June 30, Commerce One reported a net loss
of $43.1 million, or 28 cents a share. Excluding non-operating losses,
second quarter losses totaled $16.2 million, or 10 cents a share. For
the first half of 2000, the Pleasanton, Calif. company posted a net loss
of $86.8 million, or 57 cents a share.
Commerce One, which provides software and services to connect global
buyers with suppliers of business goods and services via the Internet,
said that intangible assets, including goodwill, will be amortized over
a three-year period. Goodwill and other intangible assets are expected
to total $1.5 billion, according to the filing.
Goodwill is traditionally understood as the difference between the
price paid for an acquired company and the fair value of its underlying
assets and liabilities.
As reported, Commerce One agreed June 20 to issue 0.8 of a common
share for each AppNet common share outstanding. AppNet, an interactive
marketing company, has about 34 million shares outstanding.
In its SEC filing, Commerce One estimated that goodwill charges to
operating costs and expenses would total roughly $124 million a quarter
and $497 million a fiscal year, assuming amortization in equal quarterly
amounts over a three-year period after the merger's close.
The company said an additional amount of about $90.9 million of
deferred compensation will be amortized to operating costs and expenses
over the remaining vesting periods of the related unvested options -
ranging from one to four years.
Of the intangible assets, Commerce One estimated $28 million would be
for assembled workforce, $11.9 million for customer contracts and
backlog, $3.5 million for internal proprietary software and $2.3 million
noncompete covenants. Goodwill will comprise $1.4 billion.
Consequently, "purchase accounting treatment of the merger will
increase the net loss for Commerce One in the foreseeable future, which
could cause the market value of Commerce One common stock to decline,"
according to the filing.
Separately, AppNet granted Commerce One an option to buy roughly 19.9%
of its common shares outstanding as of the first date the option becomes
exercisable, Commerce One disclosed in its SEC filing. The option has a
strike price of $41.15 a share.
"The option is intended to increase the likelihood that the merger
will be completed," Commerce One said in the filing. "It may discourage
third parties who are interested in acquiring a significant stake in
AppNet."
The option isn't currently exercisable. Commerce One may only exercise
the option if the merger agreement is terminated in certain
circumstances similar to those in which the $38.5 million termination
fee is payable.
-Kevin Guerrero; Dow Jones Newswires/Federal Filings Business News;
202-628-7667
(This story was originally published by Dow Jones Newswires)
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