Sterling sitting pretty after IBM purchase | The Columbus Dispatch

Sterling sitting pretty after IBM purchase | The Columbus Dispatch

By Tim Feran

THE COLUMBUS DISPATCH

IBM's purchase of Sterling Commerce for $1.4 billion in cash should be viewed as very good news for the 725 people who work for Sterling in central Ohio, one analyst said.

Sterling, an electronic-commerce company that helps companies buy and sell to one another, had been owned by AT&T.

"This is a true win-win situation, with both parties gaining something valuable," said Ken Vollmer, an analyst at Forrester Research. "If I was one of those folks in Columbus ... I'd feel pretty good. I don't think IBM bought it to cut it. They bought it to grow it.

"Five years from now, the people in Columbus will still be employed, and there probably will be more of them."

Most of Sterling's central Ohio employees work at the headquarters in Columbus, 4600 Lakehurst Court, near Dublin. Sterling employees will be integrated into the WebSphere organization in IBM's software group after the purchase is completed in the second half of this year, pending regulatory approval. Sterling employs 2,500 overall.

"Our intent is to keep the

organization intact," said Kareem Yusuf, vice president of business development at IBM. "We sought Sterling Commerce because we saw them as a leader in a space we were already in. They do

have great products and obviously have great people and a great customer set."

Sterling serves more than 18,000 customers worldwide, enabling more than 1 billion business interactions a year for clients such as H.J. Heinz, Honeywell, Monsanto, Scotts Miracle Gro, Best Buy and Kroger.

"IBM gets a functioning (business-to-business) network with 18,000 customers," Vollmer said, "and Sterling Commerce gets access to true (service-oriented) capabilities via the WebSphere product line."

Although IBM was in the same market, "it's not a space IBM has been in very effectively," Vollmer said - at least not since 2005, when it sold its IBM Business Exchange Business to GXS, the world's largest business-to-business service provider.

"Five years later, they (IBM) realized they need this capability and bought the leading provider," Vollmer said.

Adding competitive pressure to IBM's move is the fact that GXS is awaiting regulatory approval for a merger with a key competitor in the business-to-business sector, Inovis. Analysts predicted that such a merger would "fundamentally alter the landscape" in that industry.

AT&T was willing to sell to IBM because Sterling no longer has much connection to AT&T's main telecommunications business, officials at AT&T said. That's a change from 10 years ago, when AT&T's earlier incarnation, SBC Communications, bought Sterling for $3.9 billion.

Almost two years later, SBC/AT&T wrote down the value of the purchase by $1.8 billion as Sterling's worth declined.

"Quite honestly, it was overvalued in 2000," Vollmer said of Sterling. "It was a good price for AT&T at the time, though - they got good value out of it."

Sterling Commerce showed strong growth in most of its recent reports. In 2005, revenue was $490million; in 2006, $546million; in 2007, $634million; and in 2008, as the economy slowed, $633million.

In 2009, Software Magazine ranked Sterling 87th in a revenue-based annual listing of the world's largest software and service providers.

Columbus city officials also called the deal "a great thing."

"Obviously, anytime IBM wants to come in and invest in a business in your community, it's a good thing," said Michael Stevens, deputy development director for the city of Columbus. "And we're fortunate that we have a good AT&T presence that will remain, so all signs seem very positive."

Although AT&T Ohio doesn't break down its work force by city, the company employs more than 9,000 in the state.

On the New York Stock Exchange, IBM fell 97 cents to close at $124.45; AT&T fell 42 cents to $24.43.

tferan@dispatch.com