Covisent Gone - How Many Hundreds Of Millions Were Lost? What where the investors thinking?

Detroit February 5, 2004; John Flesher writing for the AP reported that Compuware will acquire Covisent, an e-commerce company that fell short of its promise to reform how automobile manufacturers deal with their suppliers, on Thursday announced it was selling itself to Compuware Corp., a computer software and service firm.

Company executives would not disclose financial terms during a news conference but said Covisint would retain its name while becoming a subsidiary of Detroit-based Compuware. Bob Paul, president and CEO of Southfield, Mich.-based Covisint, will remain in charge of the subsidiary.

Covisint was established as a cooperative in 2000 by General Motors Corp., Ford Motor Co. and DaimlerChrysler AG to provide a marketplace for auto parts through online auctions. Nissan of Japan, Renault S.A., Commerce One, and Oracle Corp. later joined.

Founders initially projected Covisint would broker the sale of $240 billion worth of parts annually, generating about $5 billion in revenue.

But other Internet auction sites mounted stiff competition, and some suppliers refused to work through Covisint.

Within two years, the company's initial work force of 420 had been reduced to 270 and it was generating revenues of about $6 million a month while racking up more than $10 million in monthly expenses. The company now has around 116 workers. About 100 will keep their jobs, Covisint spokesman Paul Manns said.

Covisint had four different top executives in three years. It announced last month the sale of its online auction unit to FreeMarkets Inc., a Pittsburgh-based supply management Internet software maker.

It is retaining a division responsible for developing Web portals and software tools that allows auto suppliers to electronically collaborate on engineering and design.

Despite the disappointments, Paul insisted Thursday that "Covisint is as healthy as it's ever been."

Use of its portal has risen steadily and now totals more than 135,000 users from more than 25,000 automotive and supplier organizations in 96 countries, the company said.

Covisint has reduced costs and has been "operationally profitable" since last May, and after getting out of the auction business expects to achieve net income profitability in the second quarter of this year and beyond, Paul said.

Peter Karmanos Jr., chairman and CEO of Compuware, said Covisint's electronic messaging, portal and Web services would benefit his company and offer a good service for auto suppliers.

Karmanos predicted the Covisint messaging and portal services would generate more than $20 million in the next fiscal year and eventually become a $100 million business.

"It gives us an entree into the health care, finance, retailing industries that are desperately in need of the same type of technology that the automotive industry felt it was necessary to build," he said.

He defended Covisint's past performance, contending the company had not failed but that the online auction concept was flawed.

"What they misjudged was the level of distrust that the suppliers may have had for the auction business," Karmanos said. "Nobody likes auctions. I don't like auctions either."

Compuware Corp: http://www.compuware.com/

Covisint LLC: http://www.covisint.com/