Compuware Panning to Buy Covisint - aftermarketNews

Compuware Panning to Buy Covisint

Compuware Corp., the largest high-tech company based in Michigan, is expected to announce that it will purchase financially struggling Covisint LLC, according to documents on Compuware letterhead obtained by the Detroit Free Press. The acquisition, expected to be completed within 30 days for an undisclosed "small cash transaction," ends the most expensive Internet start-up and flop ever launched in Michigan.

by Jeff Bennett
Free Press Business Writer

DETROIT — Compuware Corp., the largest high-tech company based in Michigan, is expected to announce that it will purchase financially struggling Covisint LLC, according to documents on Compuware letterhead obtained by the Detroit Free Press.

The acquisition, expected to be completed within 30 days for an undisclosed “small cash transaction,” ends the most expensive Internet start-up and flop ever launched in Michigan.

During its three-year existence, the high-tech company that cities once fought to locate in their communities, never posted a significant profit or drew its expected millions of dollars in business from auto suppliers.

Covisint was an automotive e-commerce cooperative formed by General Motors Corp., Ford Motor Co. and DaimlerChrysler AG in February 2000 and later joined by Renault and Nissan. When it launched in October 2000, Covisint was supposed to transform the way automakers conducted business.

Everything from how automakers communicated with suppliers electronically, to sharing designs or buying supplies, from steering wheels to toilet paper, was expected to be done through Covisint.

Analysts said the owners poured $500 million into Covisint because they thought almost $240 billion of car parts were expected to be bought and sold annually through its Internet site.

But supplier claims that Covisint was nothing more than a tool to drive down prices and the inability by Covisint to keep a chief executive officer doomed the venture.

Compuware was expected to announce yesterday that the purchase of Covisint’s products and technology is expected to add one to two cents per share to the company’s earnings for its 2005 fiscal year, ending March 31, 2005.

The majority of Covisint’s staff of less than 150 is expected to be retained and moved from Southfield to Compuware’s downtown Detroit headquarters during the next several months, according to the documents.

Compuware will use Covisint’s products, which include an electronic messaging system and a variety of Web services, to serve potential automotive customers.

No decision has been made whether Compuware will use the Covisint name.

Covisint’s fate appeared to be sealed early this year when it announced it was selling its biggest moneymaker, the online auction product, to Pittsburgh-based competitor FreeMarkets Inc.

The company started with a bang in the 2000 Internet hype. Besides simplifying the automotive industry, automakers thought they had an Internet juggernaut whose value would skyrocket when the company went public. The company hired 420 workers and opened offices in Southfield and in Europe.

But poor public relations turned suppliers against the automakers and Covisint. Many swore they would never join, and those that did, such as Delphi Corp., continued using other Internet sites such as FreeMarket to conduct business.

Two years later, the number of employees was cut in half, and Covisint was spending more than $10 million a month and generating revenues of about $6 million a month.

Rounding out Covisint’s problems was the revolving door on the CEO position. After searching for a CEO for more than a year, Covisint hired Kevin English, who stayed 14 months. Over the course of the next two years, Covisint would have a total of three new CEOs.

Copyright 2004 Detroit Free Press. All Rights Reserved.

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