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Pennsylvania Elections 2024: David McCormick says he created ‘hundreds of jobs.’ Records show otherwise

Pennsylvania Elections 2024: David McCormick says he created ‘hundreds of jobs.’ Records show otherwise

Pennsylvania Elections 2024: David McCormick says he created ‘hundreds of jobs.’ Records show otherwise

The fusion

In June 2003, McCormick began discussions with Robert Calderoni, president and CEO of Ariba, a Palo Alto-based competitor of FreeMarkets, about the possibility of a “strategic relationship of some kind” and, potentially, a “business combination.” After further discussions, McCormick approached his board of directors about the idea in September.

From the beginning, the company made clear that it intended to save money by reducing “layoffs,” including those resulting from job duplication. According to SEC filings, FreeMarkets told its shareholders that one benefit of the merger would be “potential cost savings of at least $25 million annually, through the consolidation of redundant facilities, personnel, and overhead.” Jim Frankola, Ariba’s chief financial officer at the time, told analysts on a conference call in January 2004: “Of those savings, we anticipate approximately one-third will come from duplicated general and administrative functions, plus half from redundant R&D efforts, and the remainder from other functions.”

Later that month, Michael Schmitt, Ariba’s executive vice president and chief marketing officer, told the San Jose Mercury News that FreeMarkets would consolidate its headquarters into Ariba’s, and that the companies would try to “eliminate redundant jobs.” That same day, the Pittsburgh Post-Gazette quoted an analyst as saying that “a lot of people in Pittsburgh are likely to lose their jobs,” adding that “that’s certainly what typically happens” with a merger.

McCormick told the Pittsburgh Post-Gazette: “There will certainly be redundant functions and a consolidation of those functions.” In a July 2004 statement about the merger, he told the court that job losses were expected “particularly in our technology development organization, where our plan as part of the combined company is to eliminate it entirely.” The following month, McCormick told Ariba shareholders what they had “accomplished” before the merger: “We have already eliminated 150 positions and have plans to eliminate another 100 positions over the next two quarters.”

In fact, by the time the merger was completed in July 2004, FreeMarkets had laid off or eliminated 150 jobs. By December 2005, the merged company had reduced its workforce by another 100 employees, for a total of 250 job losses. At least 100 of those jobs were in Pittsburgh.

Calderoni defended McCormick in an interview with the New York Post, saying: “When we bought FreeMarkets, Dave was adamant about keeping jobs in Pittsburgh. He really cared about that as part of the transaction. In fact, he pushed for us to move jobs from California to Pittsburgh.”

It was a tough time to run a tech startup. In the early 2000s, a tech bubble burst that had grown in the late 1990s thanks to easy access to capital but began to burst in the early 2000s. As the Pittsburgh Gazette reported, the merger brought together “two unprofitable online business-to-business software and services companies that rose to prominence in the heyday of the dot-com boom but then saw their fortunes turn sour in the industry, forcing them to struggle to grow.”

McCormick wrote in his book that “creative destruction, along with the bursting of the tech bubble, eventually came to our industry as well.” However, he also admitted, “We didn’t move quickly enough to become one of the true ‘software as a service’ companies that would come to dominate the landscape. As CEO, I hadn’t built a team around me that could evolve our business model quickly enough,” leading to the decision to merge with Ariba.

However, the merger was a boon for McCormick. He became Ariba’s chairman and a member of its board of directors, earning $500,000 in annual salary, compared with $350,000 at FreeMarkets, and was entitled to a planned annual bonus of $300,000. He also received 83,333 shares of Ariba stock, valued at $921,663, and 500,000 shares of stock options that had a potential realizable value of between $3.4 million and $8.8 million. In September 2005, McCormick resigned as Ariba’s chairman to serve in the George H. W. Bush administration, receiving an additional $1,701,699 in severance pay.

McCormick spokeswoman Elizabeth Gregory told WHYY News in a statement: “Dave is proud to have helped create hundreds of jobs in Western Pennsylvania during his time at FreeMarkets.”