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Microsoft to Pay $1.5 Billion for Intuit, a Small Fish but Big Rival : Computers: Deal for maker of Quicken follows disappointing results by software giant's own personal finance product.

October 14, 1994|MARTHA GROVES and LESLIE HELM | TIMES STAFF WRITERS

SAN FRANCISCO — Microsoft Corp., pulverized in the market for personal finance software by comparatively puny Intuit Inc., has decided that if you can't beat 'em, buy 'em.

The Redmond, Wash., giant said Thursday that it will pay $1.5 billion in stock for the maker of the popular Quicken software, which 6 million people use to balance checkbooks, monitor investments and track expenses. Quicken has captured nearly 50% of the market for such software, compared to a paltry 5% for Microsoft's Money program.

The purchase price represents a 40% premium over the value Intuit's stock reached Thursday afternoon, when trading was halted pending the announcement.

Intuit founder Scott Cook will take over Microsoft's broader effort in personal finance and electronic banking as the company's executive vice president of electronic commerce, working out of Intuit's existing offices in Menlo Park, Calif. Intuit Chief Executive Bill Campbell will head Microsoft's new financial products division, which will include the Intuit operation.

"You do a trade-off between being a big fish in a small pond or really trying to change the world, the way people manage their financial lives," said Cook, who appeared pleased at the idea of working for Microsoft. "We can lead the digital revolution in the financial sector. We can do it in more ways and in far more countries than before."

Hoping to avoid antitrust problems, Microsoft will sell its Money product to Novell for an amount Microsoft Chairman Bill Gates called "not financially material."

Gates, who initiated the deal with a call to Cook a few months ago, conceded that he'd moved too slowly. "In retrospect, I think I should have called (Cook) a few years earlier," he said.

Even so, Gates and others viewed the price as startlingly high. By paying a hefty premium for Intuit, Microsoft is sending a clear message that it views personal finance software--and, perhaps more important, the electronic banking and payment services that go along with it--as a market poised for explosive growth.

"If the market grows enough to warrant that valuation, we will all be happy," said Paul Harrisson, president of Meca Software, an H&R Block subsidiary that markets a competing product.

A big winner in the deal is Cook, 42, a former Procter & Gamble marketing manager whose wife, Signe Ostby, provided the idea for the company when she became frustrated trying to balance her checkbook. Cook owns 23.7% of Intuit's stock, which traded at a record high of $50.25, up $3.25, on Thursday before the trading halt. The stock had been rising for several days on rumors of a deal.

The agreement calls for Intuit shareholders to get Microsoft stock worth a minimum of $71 per Intuit share, depending on the value of the Microsoft stock at the time the deal closes.

The proposed acquisition marks a rare case of Gates deciding to throw in the towel on one of his company's own products. As it was, much of Microsoft Money's meager market share was achieved by bundling the program with other products. Intuit, on the other hand, has been selling like hot cakes for about $40 in retail outlets.

In this situation, there was not "any immediate prospect of (Microsoft) acquiring a majority share of the market" without taking such a step, said Jeff Silverstein, editor and publisher of Software Industry Bulletin, an industry newsletter in Stamford, Conn. In a few other recent cases--notably the 1992 acquisition of the Fox Pro database software--Microsoft has gone outside to fill gaps in its product line.

Jeffrey Tarter, publisher of SoftLetter, a software newsletter in Watertown, Mass., described Intuit as "far and away the industry leader . . . the Kleenex of personal finance." On top of that, Intuit owns the nation's leading tax package, thanks to its purchase last year of ChipSoft, maker of TurboTax and MacInTax, for Macintosh computers.

With business markets nearing saturation, software companies are looking to consumer markets for growth. With Intuit, moreover, Microsoft gains entry into the world of on-line banking services, in which people are expected to be able to make money transfers, pay bills and eventually trade stocks through their computers. Intuit's Quicken already offers the capability to pay by check electronically and to track credit card accounts.

Microsoft recently settled a government investigation into its business practices, and some analysts speculated Thursday that the company might run into some problems getting the Intuit buyout approved. Moreover, some in Silicon Valley lamented the swallowing of a company that had long stood out as an example of how it was possible to compete head-on with Microsoft and prosper.

But for the moment at least, competitors are putting on a happy face.

"This is a very positive situation from our perspective," said George Kafkarkou, general manager of 4Home Productions in Islandia, N.Y., which gave away millions of copies of its Kiplinger's Simply Money program in an effort to get established. "One vendor is removed."

*

Groves reported from San Francisco and Helm from Seattle.

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