e-centives to Buy Inktomi E-Commerce Business

Online marketer e-centives aims to make technology sales its core business as it plans to buy the commerce division of Internet infrastructure player Inktomi, in a deal announced Thursday.

Under terms of the sale, e-centives will provide Inktomi with up to 19.9 percent of its outstanding shares of common stock, some of which will be earned if the unit meets certain revenue and performance targets. Inktomi will receive an additional warrant to purchase e-centives common stock upon the satisfaction of still more revenue targets.

The transaction is subject to regulatory and other closing conditions. The companies did not disclose an approximate date of closing.

Officials from e-centives said that acquiring the unit, and its private-label software for running e-commerce sites, would boost the Bethesda, Md. company’s status as a provider of e-commerce and marketing technology.

In addition to the proposed sale, the companies also that Inktomi would provide its search engine technology to customers of e-centive’s new commerce division through a separate alliance.

“With the addition of Inktomi’s commerce team and technology, e-centives solidifies its clear leadership position in e-commerce and direct marketing infrastructure,” said e-centives chairman and chief executive officer Kamran Amjadi. “This acquisition, coupled with Inktomi’s alliance with e-centives, further strengthens our core infrastructure. Additionally, it provides us with an opportunity to accelerate our expansion into Europe and Asia, and solidifies our proven business model, significantly enhancing the commerce services we offer to businesses.”

E-centives will likely continuing servicing current Inktomi commerce clients, including AT&T, iWon.com and MBNA, although executives did not disclose specifics.

“The technology and customer base Inktomi has built with its commerce division provides e-centives with a powerful long-term opportunity,” said Inktomi president and CEO David Peterschmidt.

Foster City, Calif.-based Inktomi’s remaining lines of business include its Network Products — which include network caching and media broadcasting, similar to competitor Akamai — its search engine unit, and a wireless division.

Like many in its sector, e-centives has been making an effort at shifting into the technology business and away from campaign services as its chief source of revenue. That’s a move many might consider wise, with online ad and marketing campaign spending continuing to slip whereas marketing technology sales remain relatively strong, as DoubleClick’s TechSolutions unit’s recent performance noted.

However, with Thursday’s acquisition of an e-commerce unit, industry watchers might be wondering whether the online marketer is straying too far from its core competency of delivering personalized promotions and marketing technology.

Furthermore, e-centives might be wading into dangerous waters: Inktomi today met lowered earnings and revenue forecasts for its most recent quarter. The company reported pre-charge earnings of $0.01 per share on revenue of $80.5 million, meeting analysts’ estimates. But those estimates had been lowered in January, when Inktomi said its bottom line would be hurt by a slowdown in Internet infrastructure spending and macroeconomic conditions.

But e-centives sees the situation differently. According to company officials, the combination of Inktomi’s commerce business with its own direct marketing technology makes it a top player in outsourced commerce infrastructure.

E-centives, which trades on the Swiss stock exchange under the ticker symbol ECEN, was trading at 14.2 CHF, or US$8.59, 2 percent off its previous close of 14.5 CHF, or $8.77. Shares of INKT were up 0.36 percent on news of the deal and its earnings, at $17.5.

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