Ingenious Barter Arrangement Cements Strategic Tie

Do you receive a "reward" when you buy from your suppliers? Probably not. But here's an example of what's being done in some sectors of the marketplace.

Sun Microsystems has worked out a barter deal with Ancor Communications, a supplier of Internet storage switches. Bartering is not much of a leap for these technology companies, which for years have been using their high-flying shares for acquisitions and employee compensation, that they could never afford to pay for in cash.

Warrants Used As Incentive To Buy/Sell Products

Here's how the deal works. For every $67 in revenue Ancor receives from Sun, one warrant share (exercisable at $7.30) is vested. To be vested for the full 1.5 million shares, Sun must buy $100 million in switches from Ancor.

Win-Win Arrangement For Both

Ancor says the equity relationship was designed to cement a strategic tie. And under this relationship both companies benefit. Sun gets an ownership stake in Ancor, and earns a nice paper gain on the warrants, and as a result of the deal Ancor's stock has been given a boost.

When the agreement was announced in June, Ancor was selling at $10-1/4. Now the stock price is $26, after hitting a high of $38-1/2. And last month Ancor was able to sell a follow-up offering of 2.5 million shares at $27-5/8 each. A price far more than they would have been able to do without the Sun deal.

If you're not a public company, but you wish to develop some strategic relationships with critical suppliers, consider offering an incentive by working through your trade exchange, to accomplish your goal.

Provide your supplier with a set amount of "purchasing power per sale" in the form of trade dollars. Simply open up a sub-account in the supplier's name, and deposit trade dollars at various intervals. (Contact your barter company for details on a sub-account.)

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