With a $1 billion definitive agreement to buy Transpoint LLC, CheckFree Holdings Corp. is bidding to solidify its position as the leading provider of electronic billing services and as large banks' primary challenger for the billing business of large corporations.
The deal, announced late Tuesday, would combine the No. 1 and No. 2 providers of electronic billing services, and it could simplify the task of building compatible electronic bill delivery and payment systems linking billers with banks.
But that may be minor comfort to banks faced with such a formidable competitor.
"No matter what kind of face [banks] try and put on it, businesses are going to use CheckFree as their new e-bill provider," said Avivah Litan, an analyst at Stamford, Conn.-based GartnerGroup Financial Services.
Chase Manhattan Corp., First Union Corp., and Wells Fargo & Co. - the founders of the Spectrum electronic bill presentment consortium - may be particularly stung if the merger is completed. The bank-run group was formed in June to compete against the likes of CheckFree and other tech-company providers of electronic billing services.
"I hope this lights a fire under Spectrum's seat because they are moving very slowly," Ms. Litan said. "They still have not figured out how they will do payments on presented bills, and they are not even close to building the network that CheckFree has built."
David C. Stewart, vice president at Atlanta-based Global Concepts Inc., said a consolidation of power in electronic billing would work in Spectrum's favor. "Talk about creating a common enemy," he said. "I think it's great for Spectrum."
Peter Sinisgalli, president of CheckFree, said it anticipates a "mixed" reaction to the deal from bankers.
"Those that weren't working with us to begin with will be even less thrilled," Mr. Sinisgalli said.
But for banks that are not looking to sell electronic billing services directly to corporate customers, the deal's positives may outweigh the negatives. "There are many banks that do not compete with CheckFree that just want to get content to their customers," Ms. Litan said. "This just solves all of their problems."
Patrick J. Swanick, president and chief executive officer of KeyCorp's electronic services subsidiary, said the Transpoint deal would "enable the delivery of more bills over the Internet, faster and more efficiently." The increased flow of bills should "heighten interest in electronic billing and result in greater convenience and higher consumer adoption," he said.
The possibility of a deal surfaced when CheckFree and Transpoint began working together to respond to pressure from some banks and many billers to develop interoperable systems. It was not long before the "what if" question of merging was raised, Mr. Sinisgalli said.
"Most folks were distressed over the requirement that they had to build two separate infrastructures to support the different platforms," he said.
CheckFree sells its electronic billing services, which can be private-labeled by banks, to 850 financial institutions. It also has agreements with more than 350 of them to offer home banking services to their customers.
"We think that by putting these two companies together and simplifying the end-to-end electronic bill process, our bank partners can be much more aggressive and successful in rolling out electronic banking solutions," Mr. Sinisgalli said.
The deal calls for CheckFree to exchange 17 million of its shares, a 23% stake, for Transpoint. CheckFree is to get $100 million in cash upon closing, which is expected within six months. Transpoint is a joint venture of Microsoft Corp., First Data Corp., and Citigroup Inc.
Microsoft will guarantee CheckFree $120 million of revenues, and First Data's arrangement will give CheckFree an additional $60 million through either revenues or cost savings.
Word of the deal sent CheckFree's stock price soaring $32 a share Wednesday, to $100.25. Microsoft's stock closed at $97.625, down 93.75 cents; First Data closed at $48.375, up 12.5 cents.