Antitrust Suit Blocks Microsoft Bid to Buy Intuit
Microsoft Corp., whose relentless drive for dominance in the personal computer software industry has overwhelmed competitors and government regulators for more than a decade, suffered a major setback Thursday when the Justice Department sued to block the software giant’s $2-billion acquisition of personal finance software vendor Intuit Inc.
In a 14-page complaint filed in U.S. District Court in San Francisco, the Justice Department said a Microsoft takeover of Intuit--whose Quicken program controls more than 70% of the market for personal finance software--”would likely lead to higher prices and lessened innovation” and would thus violate antitrust laws.
“Allowing Microsoft to buy a dominant position in this highly concentrated market would likely result in higher prices for consumers who want to buy personal finance software and would cause those buyers to miss out on the huge benefits from innovation,” said Anne K. Bingaman, who heads the department’s antitrust division.
Microsoft, which has been dogged by a separate government antitrust investigation for more than four years, vowed to fight the Justice Department action, asserting that the Intuit deal is “very clearly in the interest of consumers.” But few now expect the deal to be completed: Intuit’s stock plunged $10.25 to $72.75 on Nasdaq before trading was halted Thursday, and Microsoft’s shares--which have been climbing sharply for weeks--fell $1 to close at $78.625.
The government action, one of the most aggressive antitrust moves yet by the Clinton Administration, could blunt Microsoft’s ability to compete not only in personal finance software but in a range of other new businesses--and there are sharply differing views as to whether that is a good thing.
Financial analysts denounced the Justice Department’s action, saying Microsoft and its hard-driving chairman, Bill Gates, were being penalized for the sin of being successful, and that the U.S. economy would ultimately be worse off for it. But many of Microsoft’s rivals cheered--and antitrust experts said the Justice Department appeared to be on firm ground. A court hearing on the Justice Department’s request for an injunction blocking the acquisition--which would have been the largest software industry merger ever--is expected within a few weeks.
Intuit’s Quicken software was conceived in the 1980s as a simple program to help families balance their checkbooks and create a monthly budget, and it quickly came to dominate the personal finance field--largely because it was very easy to use and Intuit provided first-rate customer service. Microsoft’s efforts to compete with a product called Money were mostly futile--as were challenges from companies such as Computer Associates and H & R Block.
Mindful of antitrust issues, Microsoft had planned to give the Money program to Novell Inc. as part of the Intuit transaction. But Bingaman dismissed that gesture: “This so-called fix just won’t work,” she said in announcing the suit.
And the Justice Department is concerned not only about the future viability of the personal finance software industry but also about the fledgling world of on-line commerce. In the future, many people are expected to bank, shop and pay their bills via their personal computers.
“The acquisition threatens harm to consumers in other important areas of commerce, especially in the area of personal computer-based home banking, which is a relatively tiny part of the (personal finance) . . . software market today,” the department said in its brief.
From the day that it landed a contract to provide the basic operating software for the original IBM personal computer, Microsoft’s influence over the personal computer industry has grown steadily. Its operating system software, MS-DOS, and a subsequent enhancement to it, called Windows, are now standard features on more than 80% of all PCs. That success has helped it build a powerful position in so-called applications software, such as spreadsheets and word processors.
Microsoft’s growth has made Gates the richest man in America, and generated million-dollar fortunes for hundreds of Microsoft employees. Now, the company is spreading its wings even further, moving aggressively into education and entertainment software and preparing to launch an on-line service this August along with the latest version of its operating software, Windows 95.
Its market dominance and aggressive expansion plans have long been criticized by competitors, who allege that Microsoft doesn’t always play by the rules and unfairly exploits its near-monopoly in operating software.
And yet, only a few months ago, the software maker seemed on the verge of consolidating its position. It had settled a four-year government antitrust investigation by agreeing to relatively minor restrictions on the way it licensed its MS-DOS and Windows, and seemed free to pursue new markets.
But an iconoclastic federal judge threw out the antitrust settlement as too soft on the company. That decision, which was the subject of an appellate court hearing earlier this week, may yet be overturned. But many observers believe that the Justice Department, stung by criticism that its settlement with Microsoft was a weak slap on the wrist, was obliged to save face by blocking the Intuit deal.
Bingaman has been trying to cultivate a “reputation of being tough on antitrust enforcement,” said Washington antitrust attorney Charles F. Rule. “But the department has had to face criticism that they have been soft on Microsoft . . . which has put them under some pressure to be aggressive in this case.”
George Cumming, an antitrust expert and partner in the San Francisco law firm of Brobeck, Phleger & Harrison, added: “The nature of the software business and the size of Intuit and the size of Microsoft sort of painted people into a corner.”
Microsoft and Intuit face long odds in their effort to fight the government’s suit. A crucial hearing on the government’s request for a preliminary injunction should come within weeks. If the injunction is granted, the two companies face years of litigation, and might well choose to back down.
Already, the delay in approving the deal has been a damaging distraction for Intuit and some expect that another suitor might emerge to make a run at the company. And Microsoft also might want to do its best to put its antitrust troubles behind, at least for the moment.
Yet analysts note that Microsoft does not want to look weak either in the face of ongoing antitrust enforcement actions and surely fears the prospect of being challenged at every turn. And Gates is known to be combative, to say the least: “Generally when the Justice Department challenges you, you back off,” said Gordon Eubanks, chief executive of software rival Symantec Inc. “But I don’t think back off is in Bill’s vocabulary.”
* INDUSTRY IMPACT: Action has major implications for software makers. D1.
