CheckFree Catches a BlueGill (Fool Plate Special) December 21, 1999

An Investment Opinion

CheckFree Catches a BlueGill

By Dave Marino-Nachison (TMF Braden)
December 21, 1999

Shares of online bill payment services firm CheckFree (Nasdaq: CKFR) didn't move much this morning, rising only slightly following the company's announcement of the purchase of electronic billing software developer BlueGill Technologies.

Perhaps that's because the deal didn't immediately seize the imaginations of investors like, say, CheckFree's Dec. 13 press release that mentioned the company's technology as a key component of Rule Making portal operator Yahoo!'s (Nasdaq: YHOO) new E-Bills service, which lets Yahoo! users view and pay their bills online. CheckFree shares enjoyed a more than 17% rise on the news.

Distribution agreements, particularly those involving mega-partners of the Yahoo! variety, are the ones that power short-term stock moves, but the announcement that a company is expanding its offerings is the chicken that comes before the egg (or the egg that comes before the chicken, depending on your theology).

CheckFree's news today regarding BlueGill appears one such agreement. The hard numbers: CheckFree will exchange approximately 3.2 million of its common shares for privately held BlueGill, valuing it at approximately $250 million. The deal is expected to account for approximately $5 million of revenue -- fiscal 1999 revenues were approximately $250 million -- and $0.10 of charges to earnings per share for fiscal 2000 (ending June 30).

Wall Street is currently looking for a $0.37 per share loss for the full year. "Over the next 30 to 60 days," said CheckFree COO Pete Sinisgalli, "BlueGill and CheckFree will work together to develop joint product development, sales, and operational plans that ensure our customers, partners, and prospects gain the full benefits of our having joined our technologies and services."

What BlueGill adds to CheckFree's mix was expertise in developing software based on the Extensible Markup Language (XML), a programming tool that is a common way of transmitting data over the Web for easy sharing of data across different platforms. (For more on XML, click here.)

"I think the thing that people understand the least about electronic billing and payment is the [infrastructure]. It's easy to understand the technology results, which is you get a bill electronically, you click a button to pay electronically, and the merchant you're paying has an electronic deposit into his account and an electronic notification of payment in his accounts receivables system," CheckFree Chairman and CEO Peter Kight said in an August StockTalk interview with the Fool.

"But of course," Kight continued, "[what is] necessary to make it easy for consumers to be able to do that -- easy for a bank or a financial service company to be able to provide you with that availability and making those links to thousands of merchants, in fact tens of thousands of places that you want to pay -- is really what's involved in the overall infrastructure."

Hence today's deal. The combination would present CheckFree's customers with a one-stop shop combining BlueGill's paper-to-electronic billing abilities with its own routing services to create an offering the company will hope attract new users looking for increased convenience.

"BlueGill introduced the first software system developed using Extensible Markup Language," Sinisgalli said. "XML enables businesses to share information broadly and efficiently, and will accelerate the adoption of data exchange over the Internet.... Data exchange over the Internet in an interoperable fashion is at the heart of the promise of electronic billing and payment."

This move would seem to expand CheckFree's potential market reach both in terms of the technology it can offer and in terms of customer relationships with BlueGill partners, which include such luminaries as IBM (NYSE: IBM) and BroadVision (Nasdaq: BVSN) -- though there is some crossover. CheckFree also gains exposure to a handful of new international markets through the deal. Though the stock didn't rocket skyward today on the news, investors in or considering CheckFree should look well on today's announcement as it signals the company's continuing efforts to hold on to its leadership position in electronic bill payment.

Related Links:
CheckFree Message Board
StockTalk, 8/24/99, CheckFree

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