US merchant payment processor Electronic Clearing House (Echo) has called off its planned $142 million merger with financial software vendor Intuit following a federal investigation into online gambling by the firm's Internet wallet customers.
In two separate statements the companies, which had entered a merger agreement on 14 December 2006, say they each agreed to release each other from all claims. The deal had been valued at $142 million, or $18.75 a share, including shares issuable upon exercise of options.
But the merger seems to have been scuppered in large part by the federal government's ongoing crackdown on Internet gambling.
California-based Echo says it has entered into a non-prosecution agreement with the US Attorney for the Southern District of New York and has agreed to give up an estimated $2.3 million in profit from services provided to its Internet wallet customers from 2001 until February this year when it ceased all processing and collection services for these customers.
Echo says it will continue to act as a witness in the investigation and also expects to incur additional legal expenses related to the federal probe.
Although Echo hasn't stated that it was the federal investigation that torpedoed its merger with Intuit, company chairman and chief executive Joel Barry told reporters that the investigation and $2.3 million settlement was a "primary contributing factor" to the decision to terminate merger transaction.
In a statement Barry says the costs associated with the proposed merger, along with the settlement and on-going legal expenses, will negatively impact the firm's near-term financial results.
US Congress passed the Unlawful Internet Gambling Enforcement Act last September which bans payments processors from handling online payments for Internet gambling sites.