Observers are asking why CheckFree Holdings Corp. agreed to pay such a high price - nearly $1 billion - last week to buy its rival in electronic bill presentment, Transpoint LLC.

The deal, once approved, would transfer 23% of CheckFree's stock to Transpoint's owners, Microsoft Corp., First Data Corp., and Citigroup Inc. It would give CheckFree $100 million of cash upon closing, resulting in a net cost to CheckFree of $900 million.

"Transpoint is worth this much only to CheckFree, which receives enough benefit from the transaction to make the cost palatable," said James Marks, an analyst at Credit Suisse First Boston.

By 2003, CheckFree expects to capture 30% of the U.S. electronic bill-paying market, which should comprise 18.4 million households by that time, up from 3.5 million last year. Transpoint, a nearly four-year-old effort, has not gained nearly the same momentum.

"In one blow, CheckFree has knocked out the only serious competitor it had in bill presentment, making itself the clear leader," Mr. Marks said.

The deal would also eliminate questions about the interoperability of competing systems, Mr. Marks said, which could boost growth. "The imperative here is to accelerate bill presentment," he said. CheckFree needs to "get it out there and get it out quickly."

The high price tag includes access to Microsoft's technology and its developers, and to First Data Corp.'s corporate relationships. Microsoft and First Data are promising CheckFree revenues of $120 million and $60 million, respectively, over the next five years.

CheckFree announced the deal late Tuesday, and its stock rose 47% the next trading day, to $100.25. The stock reached an intraday high of $125.625 a share. CheckFree shares closed Friday at $82.6875, up 14% for the week. Mr. Marks reiterated his "buy" rating and a target price of $110 a share.

Transpoint basically gave up on trying to make a business of bill presentment, said Avivah Litan, an analyst at GartnerGroup Financial Services in Stamford, Conn.

"The barriers to enter this market were high, and the rewards were so long in coming that they just folded up and left," Ms. Litan said.

None of the members of Transpoint provided significant contributions, she noted.

Citigroup did not, as expected, contribute its "pay anyone" service - the ability to pay any recipient, regardless of electronic connections. It joined Transpoint as a minority investor in 1998 when the venture was still known as MSFDC.

Ms. Litan said she believes that Edward Horowitz, head of Citigroup's advanced technology applications group, e-Citi, got into MSFDC impulsively. It was a time when he was investing in many kinds of electronic commerce companies, she said.

First Data's involvement, meanwhile, was "a total disappointment," Ms. Litan said. "They were supposed to bring all of these biller connections and payment capabilities, and they did neither one," she said.

Citigroup was noticeably absent from the conference call announcing the deal. Its long-term role in CheckFree's bill payment and presentment strategy has not been defined.

Citi has been working with Transpoint as a biller, customer service provider, and bill processor, according to Peter Sinisgalli, president of CheckFree. The banking company will have the opportunity to continue those relationships after the merger is closed, but it is not a requirement, Mr. Sinisgalli said.

"We certainly hope the combined entity can convince Citigroup that there is increased value that we can provide them, but that has yet to be determined," he said.

Gary Churgin, a director of sales and marketing of electronic bill payment and presentment at e-Citi, said the deal has raised a lot of dust. He said he has been in touch with Transpoint and CheckFree to "sort out what is happening."

"There may be a certain amount of uncertainty as to how it will look," Mr. Churgin said. "We also recognize that it will take four to six months to close so in our view, we have to maintain business as usual."

Citigroup has an agreement with Transpoint that enables it to re-market Transpoint to its corporate billers.

Mr. Marks said he never understood why Citigroup joined Transpoint in the first place. Microsoft said the point of the deal was about using Citi's name brand and reputation, he said, though most believed Citi's contribution was its pay-anyone services.

Citigroup is one the largest billers in the country by virtue of its credit card operations, and it runs one of the industry's few independent bill-payment engines. "Sooner or later, whether they recognize it or not, they will have to turn that over to presumably CheckFree," Mr. Marks said.

Citigroup officials declined to say whether they were considering that.

The cost of Citigroup maintaining bill-payment capability, "not only in money, but in product development and capability, will be ultimately too high," Mr. Marks said.

A potential monkey wrench in the deal is the antitrust issue. "Right now there is no direct competition," to CheckFree, Mr. Marks said. "There is sure to be antitrust scrutiny of this deal, especially given the Department of Justice's maniacal focus on Microsoft."

Ms. Litan said she doubted the deal would get hung up because of regulatory concerns. "This is such a new immature market that I don't think Justice will even look at it."

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