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Bank of America to Acquire
A 16% Stake in CheckFree
By CARRICK MOLLENKAMP
Staff Reporter of THE WALL STREET JOURNAL


CheckFree Holdings Corp. has agreed to give Bank of America Corp. a 16% stake valued at a minimum of $325 million in exchange for allowing CheckFree to handle online bill processing for the bank's Internet customers for the next 10 years, according to company officials.

Officials from Bank of America, Charlotte, N.C., and CheckFree, based in Atlanta, are expected to announce the deal as early as Thursday.

CheckFree, which expects to close its $1 billion acquisition of rival TransPoint LLC this summer to secure its lead role in the online-billing industry, is giving up a sizable chunk of the company as a bet that the bank will yield a bigger customer base. The Bank of America deal benefits CheckFree because it instantly gains access to the bank's 30 million customer households and knocks out a potential competitor. Bank of America solves some of its own technology dilemmas and gets a hefty stake in what could eventually become an even more valuable concern.

First Data Corp., Microsoft Corp. and Citigroup Inc., which own TransPoint as a joint venture, will hold a combined 23% stake in CheckFree as a result of the TransPoint acquisition. CheckFree, for the year ended June 30, 1999, handled a total of 125 million payments for three million consumers.

In Nasdaq Stock Market trading at 4 p.m. Wednesday, CheckFree's stock rose $7.0625, or 22%, to $39.5625 after the company late Tuesday reported a fiscal third-quarter loss that was narrower than analysts' estimates.

CheckFree reported a net loss for the quarter ended March 31 of $3.9 million, or seven cents a diluted share, on revenue of $79.7 million. Wall Street had expected a loss of nine cents a share. A year earlier, CheckFree had a net loss after $2.6 million in charges of $308,000, or one cent a share, on revenue of $63 million.

Billers Increase

Steven Olson, an analyst at Pacific Growth Equities, said, "There are a lot of good numbers between the lines."

One important figure was that the number of companies plugged into CheckFree's system rose to 121 billers in the third quarter from 89 billers in the second quarter.

Bank of America's decision to partner up with CheckFree challenges the approach of other banks. Wells Fargo & Co., Chase Manhattan Corp. and First Union Corp. teamed up last June to form an alliance called Spectrum LLC, but it has had a slow start. Some banks are trying to go it alone.

For Bank of America's 2.1 million online customers, the CheckFree agreement means they will be able to pay and receive bills online by the end of the year, much sooner than was anticipated. The bank had debated whether to build its own billing service or to outsource it to CheckFree. The company still doesn't have a seamless Web product and West Coast customers are using a different computer platform than East Coast customers.

"This will enable us to get them on one platform," for bill payment, said CheckFree's chief executive and founder, Pete Kight.

James Dixon, who directs the bank's Internet ventures, said CheckFree will offer the same electronic billing-product to all customers.

A Slow Start

Online bill payment in general has gotten off to a slow start. A scant six million people do their banking online; by comparison, America Online Inc. has more than 20 million customers. Billers have been slow to sign up, because the industry is splintered, and they aren't sure which bank or service to use. Meanwhile, banks have had difficulties making the technology work and have been generally slow to embrace online services because of security concerns.

CheckFree's Mr. Kight and Bank of America's Mr. Dixon are regular golf partners. Talks between them to do this deal sped up in the fourth quarter when Bank of America President Kenneth Lewis told Mr. Dixon to pursue more than just an outsourcing agreement, according to Mr. Dixon.

Bank of America will turn over its West Coast billing system to CheckFree, which will now wrap that system, currently the bank's only online bill-payment system, into one combined with the East Coast system.

Under terms of the deal, Bank of America will receive 10 million shares priced at Tuesday's close of $32.50. In addition, Bank of America has the right to buy 10 million more shares at $32.50 a share if the bank's customer base of online bill payers grows at certain levels.

Mr. Dixon, a lawyer and longtime bank executive, only recently took over the Internet unit. The bank has negotiated a number of Internet deals, but this would be one of the largest.

"We're anxious to accelerate what our customers can do over the Web," Mr. Dixon said.

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com
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