NEWS ANALYSIS : Microsoft-Intuit Merger: It Will Be a Judgment Call
Microsoft Corp. and Intuit Inc. face an uphill battle in trying to beat back a Justice Department challenge to their $2.1-billion merger agreement, and they may already have suffered a stroke of bad luck with the assignment of U.S. District Judge William Orrick to the case.
Orrick, a San Francisco native who was appointed to the bench by Richard Nixon in 1974, was himself once assistant attorney general in charge of antitrust enforcement. He served in that post from 1963 to 1965--a time that some lawyers recall as something of a golden age for antitrust enforcement.
Barring a negotiated settlement between Microsoft and the government--which most observers consider unlikely--it is Orrick who will make a crucial early decision on whether to grant the government a preliminary injunction blocking the merger. Though no hearing date has yet been set, such a decision will likely come within two months at the most, attorneys say.
Bay Area lawyers say Orrick, who is from a prominent San Francisco family, is a stickler for proper courtroom protocol and is known as a judge who makes quick decisions. “He’s not going to be afraid of something like this,” said one Bay Area lawyer. That, at least, should be encouraging to Intuit and Microsoft, because time is of the essence: a legal battle dragging out over several years would probably doom the merger before a final verdict was even reached.
Microsoft general counsel William Neukom hopes for a speedy trial. “The government has had four and a half years of collecting information on Microsoft,” he said, referring to a separate antitrust investigation that ended in a controversial consent decree that has as of yet failed to win court approval. “They’ve had another six months on this transaction.” Microsoft is eager to get into the fledgling business of electronic commerce--either with or without Intuit.
No matter what the disposition of the judge--and no matter how slowly or quickly the case proceeds--legal experts say the government’s case looks strong. Before the merger was proposed, the market for home accounting software had a very strong leader in Intuit, which holds a 70% share of that segment with it’s Quicken program, and a highly motivated No. 2 in Microsoft.
During the merger negotiations, Microsoft Chairman William Gates III warned Intuit Chairman Scott Cook--as documented in an internal Microsoft memo from Gates to Neukom--that he was prepared to invest significant resources to challenge Intuit should Cook try to fight the merger.
Although Microsoft intended to sell its Microsoft Money product, which has 22% of the home accounting market, to Novell Inc., Justice rejected that as an inadequate solution. Given that Novell lacks Microsoft’s resources, its argument that a competitive environment would continue to exist post-merger is weak, legal experts said.
That leaves little latitude for a negotiated settlement, legal experts said, though conceivably Justice might accept an arrangement where Microsoft agreed to some restrictions on how it used Quicken in the emerging on-line banking and electronic commerce field.
Intuit shares continued to fall Friday on pessimism about the merger, losing $5 to close $67.75 on Nasdaq after plunging $10.25 on Thursday. Microsoft stock rallied Friday, gaining $3.125 to close at $81.75.
The Justice Department and assistant attorney general for antitrust Anne K. Bingaman desperately need a victory: not only was Bingaman embarrassed when Judge Stanley Sporkin rejected the consent decree reached last year with Microsoft, but the department also has little to show for its much-publicized determination to stiffen antitrust enforcement.
