Under the deal, CheckFree will acquire TransPoint for 17 million shares, worth about $1 billion based on the company's share price of $68.25 at the close of regular trading yesterday. Both companies are leaders in the online bill-payment market.
Shares in CheckFree jumped $32 to $100.25 at the 1 p.m. PST close of regular trading. Microsoft shares dipped 94 cents, or less than 1 percent, to $97.63.
TransPoint partners Microsoft, First Data and Citibank together will own 23 percent of CheckFree as a result of the transaction.
"This deal will accelerate the adoption of e-commerce and payments online," TransPoint CEO Lewis Levin said in an interview.
Consumers have been reluctant to embrace online billing because of its inconvenience--bill-paying services typically don't allow users to settle all of their accounts. Today's move suggests that building the market through consolidation may be more important than bare-knuckled competition at this stage of the game.
"One of the key motivators to this deal has come from billers," CheckFree chief operating officer Pete Sinisgalli said in an interview. "All the billers we call on--and we call on the same ones as TransPoint--have told us, 'You've got to get together?We need to have one protocol.'"
Nearly 80 companies accept electronic payment via the Internet through either CheckFree or TransPoint, according to the two companies. The roster includes AT&T, MCI WorldCom, GTE and Qwest Communications. But the bill presentment market comprises an estimated 63 billion bills issued in the United States every year
In addition to combining CheckFree and TransPoint's billing networks, the merger details numerous cooperative agreements involving First Data's electronic payment and reconciliation services and Microsoft's online service, MSN.
Financial institutions and Web portals are vying to become a place where consumers can go to view and pay all their bills in a single location. Banks see themselves as logical hosts because they already have financial relationships with both billers and consumers.
Ric Duques, CEO of First Data, said in a statement that the agreement provides an opportunity to capitalize on First Data's core payment-processing expertise and provides access to subsidiary Western Union's U.S. network of more than 4,000 billers, from electric and gas to water and phone companies.
This past summer, a consortium of banks led by Chase Manhattan Bank, First Union and Wells Fargo came together to form an online payment network called Spectrum, intended to act as an exchange routing electronic bills between banks and their customers. In December, Sun Microsystems and Netscape Communications announced plans to help Spectrum create an Internet billing system.
Portals, including Yahoo, America Online and Excite, also see online billing as a way to draw repeat traffic, as consumers return monthly to pay bills.
As CheckFree plans to offer services to allow consumers access to their bills online from anywhere, Microsoft's MSN features prominently in today's merger. Under the deal, Microsoft will pay CheckFree a minimum of $120 million over five years to provide bill-paying services on its recently overhauled MoneyCentral site.
Intuit, which is a TransPoint partner and has a minority ownership position in CheckFree, also voiced support for combining the companies, citing interoperability as a key benefit.
"Intuit believes the combination of CheckFree and TransPoint is a very positive move for the acceleration of electronic billing and payment," Bill Campbell, chairman of Intuit, said in a statement. "Through our relationship with CheckFree, Quicken.com and its customers will be strong beneficiaries of the increase in electronic bills delivered."