GE to Sell B2B Unit After Sales Decline
General Electric Co. is selling its business-to-business e-commerce unit, a once highly touted enterprise that was supposed to change the way companies process orders and manage inventory.
Global Exchange Services, better known as GXS, will be acquired by buyout firm Francisco Partners for $800 million, according to a joint statement issued Monday by GE and Francisco. GE, which formed GXS in 2000 and has been its biggest customer, will retain 10% ownership of the unit.
GXS services have been used by about 80% of companies listed on the Fortune 500, according to GE. But sales last year fell to $602 million from $640 million. And the unit’s chief executive, Harvey Seegers, said sales this year were running at a rate similar to 2001.
GE officials said the unit--which took purchase orders, shipping notices, invoices and other formerly paper documents online--was being sold because it did not fit in with the industry giant’s core businesses of manufacturing and financial services.
“We felt that [GXS] has a chance to do much better under the ownership of a group that is focused exclusively on technology,” said GE spokesman David Frail.
But Standard & Poor’s analyst Robert Freedman said he believes GE’s decision to sell had more to do with GXS’ disappointing results.
“I think they would hold onto a business that makes a good buck, whether it’s core or not,” Freedman said. “They made a big investment in this area and it did not pan out in the way they anticipated.”
Executives at privately held Francisco, located in Menlo Park, declined to comment. The $2.5-billion fund owns computer and technology companies including Legerity, a former Advanced Micro Devices Inc. unit.
Wall Street seemed to have liked GE’s unloading of GXS. The stock led a midday rally and closed up 65 cents to $29.60 on the New York Stock Exchange.
GXS established a computer network that could be used by companies to process the documents. In addition to GE, the network was used by Eastman Kodak Co., DaimlerChrysler, Target Corp. and Sara Lee Corp.
About 80% of the company’s sales derived from the network, Seegers said. The rest came from sales of software used by mostly smaller companies to do their own processing. GXS grew out of GE Information Services, which in the 1960s teamed with Dartmouth College to develop the BASIC computer language.
GXS, which has 1,600 employees, has fared far better than many formerly highflying “B2B” e-commerce firms. The stock of one its major competitors, Ariba Inc., soared to near $330 in March 2000. On Monday, it closed up 26 cents to $2.90 on Nasdaq.
E-commerce consultant Frank Kenney said he thinks online B2B commerce is still viable.
“It is far from dead; people are still saving a lot of money by using B2B,” said Kenney of Gartner Inc.
He said GXS remains strong and might pick up some businesses from struggling competitors.
