Intuit Plans to Buy Digital Insight for $1.35 Billion

By Ville Heiskanen

Nov. 30 (Bloomberg) -- Intuit Inc. agreed to buy Digital Insight Corp. for $1.35 billion, adding a provider of Internet services to banks and expanding beyond its TurboTax and QuickBooks accounting products.

Intuit will pay $39 a share for Digital Insight, Mountain View, California-based Intuit said in a statement today. That's 18 percent more than Calabasas, California-based company's closing price of $33 yesterday.

The purchase gives Intuit a third business with $214 million in revenue and access to 1,750 financial institutions that use Digital Insight's services for Web site development, electronic bill payment and online lending. Intuit plans to expand those offerings as well as use the acquisition to sell more of its current products through banks and credit unions.

``This is a totally new market for Intuit,'' said Glenn Greene, an analyst at ThinkEquity Partners in Chicago, who rates the stock ``accumulate'' and doesn't own shares in either company. ``This acquisition gives Intuit a third growth leg.''

Shares of Digital Insight rose $5.22, or 16 percent, to $38.22 at 1:07 p.m. New York time in Nasdaq Stock Market composite trading and had gained 3.1 percent this year before today. Intuit shares slipped 24 cents to $31.65. The stock has gained 20 percent this year.

Banking Clients

Digital Insight was founded in 1995 by Paul Fiore and Daniel Jacoby, and first sold shares to the public in 1999, according to the company's Web site. In 1997, the company created a program for ordering U.S. Savings Bonds over the Internet. Services to deliver online statements and check imaging first became available to clients in 2000.

The acquisition is ``all about building a financial institutions business,'' Intuit Chief Executive Officer Stephen Bennett said on a conference call today. ``I'm excited about the long-term growth opportunities.''

Intuit will finance the purchase with existing cash and as much as $1 billion of debt and expects to complete the acquisition in the first quarter of 2007.

The purchase will lower earnings per share in the current fiscal year by 2 to 3 cents and increase profit ``slightly'' in fiscal 2008, Intuit said. The company reported net income of $417 million in the year ended July 31, compared with a profit of $26.5 million for Digital Insight in 2005.

Intuit was advised by Morgan Stanley and Digital Insight was advised by Merrill Lynch, Intuit spokeswoman Diane Carlini said.

The acquisition may also help smooth out fluctuations in sales. Intuit got the bulk of its $2.3 billion in 2006 revenue between November and April as customers bought products to complete their tax returns.

Adding Features

Bennett said in an interview that Intuit plans to lure more users for online banking by making Digital Insight's products easier to use and adding features for invoicing and expense management. He said the company may make more acquisitions.

``They are trying to come up with a `killer application' for small businesses,'' ThinkEquity's Greene said. He said Intuit has signaled its intention to expand through purchases.

Shares of CheckFree Corp., a Norcross, Georgia-based competitor to Digital Insight, gained $2.10, or 5.3 percent, to $41.86 in Nasdaq trading today.

As of September, the largest shareholder in Digital Insight was Transamerica Investment Management LLC with about 14.1 percent of the shares outstanding, or about 4.56 million shares, according to data compiled by Bloomberg. The second largest with 5.4 percent of the shares outstanding, or 1.74 million, was Barclays Global Investors Ltd.