Microsoft Calls Off Deal to Purchase Intuit : Merger: U.S. had sued to block acquisition of software maker. Gates said he did not want a long court fight.
In a major victory for the U.S. Justice Department, software powerhouse Microsoft Corp. announced Saturday that it is dropping its plans to acquire Intuit Inc., the creator of the hot-selling personal-finance software Quicken.
The Justice Department had sued to block the $2.4-billion deal three weeks ago as part of a two-pronged effort to blunt the growing power of Microsoft and its aggressive chairman, Bill Gates. Government lawyers argued that the acquisition would have given Microsoft--already the world’s largest software company--a dominant position in the market for personal-finance software and in the emerging electronic commerce business, and thus was in violation of antitrust laws.
Microsoft and Intuit initially vowed to fight the lawsuit. But Gates said Saturday that the deal looked like it would be tied up in court for several months--and possibly into next year--essentially freezing Microsoft’s efforts in financial services at a crucial time. With financial services companies such as BankAmerica Corp. and NationsBank Corp. soon to offer electronic banking to their customers, it was a wait that Microsoft felt it could ill-afford.
Microsoft paid Intuit $46.5 million to back out of the deal.
In separate press conferences, Gates and Intuit Chairman Scott Cook expressed disappointment over the deal’s failure.
Gates insisted that Microsoft would not change the way that it conducts business. “Our focus is building great software,” he said. “We thought this deal would help us do that. The only change you might see is that we’ll wait a week or two before we try something like this again.”
Until Saturday, lawyers for both sides had been bickering over trial dates, with Microsoft pushing for a two-week trial in June and the Justice Department asking for five weeks beginning in July.
The lawsuit to block the deal was one of two separate actions aimed at slowing Gates and Microsoft. Last June, the department concluded a four-year investigation of Microsoft by agreeing to a settlement that forced Microsoft to change the way it licensed its DOS and Windows operating systems. The settlement was roundly criticized as too soft on the company, and in a highly unusual rebuke to the department, a federal judge in February rejected the consent decree as too narrow. Microsoft and the department then suddenly became allies in that case, appealing the rejection of the decree. A decision by the U.S. Circuit Court of Appeals is expected soon.
Still stinging from criticism that it had been weak in its dealings with Microsoft and delighted to avoid a high-stakes trial, department officials savored their victory Saturday.
“We’re extremely gratified,” said Steven Sunshine, an aide to Assistant Atty. Gen. Anne Bingaman. “Today we heard both companies vow to independently pursue this whole area of personal-finance software vigorously. That will be good for the consumer and that’s all that we were asking for.”
Microsoft had hoped that the acquisition would give it entree to the potentially lucrative market for electronic commerce, possibly even allowing it to collect fees for every electronic transaction made using its software. Had the acquisition gone through, Microsoft Money, a weak competitor to Intuit’s Quicken, would have been sold to Novell Inc. Quicken has about 70% of the market for personal-finance software, while Microsoft Money has about 22%.
The prospect of Microsoft entering the financial-services arena was troubling to bankers, software competitors and many others who feared a Microsoft stranglehold. Microsoft would likely have incorporated Quicken into the next version of Windows, the computer-operating system used by the majority of PC users, which would have broadened the product’s reach to millions of new customers.
Also, Microsoft will soon introduce its Microsoft Network, an on-line service that will challenge America Online, Prodigy and others--and give Microsoft a pipeline down which transactions could travel. With both pieces in place, Microsoft would have had leverage to collect the lion’s share of electronic transactions.
The end of the Intuit-Microsoft deal has many breathing a sigh of relief. “We’ve come a long way from the government early on not understanding the ramifications of the acquisition to today,” said Gary Reback, a partner with Wilson, Sonsini, Goodrich & Rosati who represents discount brokerage firm Charles Schwab and other unnamed companies opposed to the merger.
But no one expects that Microsoft will now abandon electronic commerce. Gates said a revamped version of Microsoft Money will debut shortly. During negotiations to buy Intuit, Gates allegedly warned that should Cook try to fight the merger, he would use the sum that would have gone toward the acquisition to compete against its smaller rival.
And Cook once referred to Microsoft as Godzilla when discussing its business tactics. Both comments, gleaned from internal company memos and gathered by the Justice Department, were used to bolster the federal lawsuit.
Just as it is clear that Microsoft will continue to pursue electronic commerce, it is equally as clear that the Justice Department will continue to watch Microsoft very closely. “I reminded Justice now that this is over, they can move all the people who had been working on this into an investigation of the [Microsoft] Network,” Reback said.
Microsoft’s possible dominance of the on-line world via Microsoft Network has many in the industry worried. Intuit, paradoxically, may now be in better shape than before the proposed acquisition.
“Everyone’s jockeying for position in electronic commerce and electronic financial services,” Cook said. “Some people have gotten a whole lot more interested in working with us than they have in the past. We really underestimated the appeal of what we’re doing has to financial institutions.”
Cook said the company will fight to remain independent. “We have zero, zip interest in a merger with someone else,” he said.
Intuit will be attractive to bankers seeking a software partner and who seemingly share an anyone-but-Microsoft mind-set.
“It’s clear that Microsoft has terrified the banking community,” said Jeffrey Tarter, editor of Softletter, an industry newsletter based in Cambridge, Mass. “Scott Cook is a good position to cut deals with people who are terrified of the Microsoft colossus.”