CNBC Transcript:
Jun 25 1999 10:26AM ET
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CNBC Transcript
Guest: CheckFree Holdings CEO Allen Shulman
Show: Squawk Box
June 25, 1999
Mark: A planned secondary offering hits the skids at electronic banking giant CheckFree. That call
was made after a group of banks calling themselves "The Exchange" announced plans to get into
the electronic banking business. These banks, Chase Manhattan, First Union and Wells Fargo
coincidentally are customers of CheckFree. Investor's interpreted the move as a hostile one. The
stock dropped more than 24% on Wednesday, the day of the announcement, and it fell an
additional 5/8 yesterday. In today's company call, let's get a response from CheckFree
themselves. Good morning, Allen Shulman, Chief Financial Officer of CheckFree holdings. Good
morning.
Good morning.
Mark: What is this all about here? Are your customers rebelling?
Not at all. We had secondary that we had started a couple of weeks earlier and on Monday night
we priced and on Tuesday afternoon announcement, which forecast that the banks would be
making an announcement. What they announced was not that they would not be getting into
electronic billing and payment, that is something that CheckFree does exclusively. They want an
opportunity to take the corporate clients for whom they do treasury and management services and
convert their paper bills into electronic bills and make them available over the Internet. CheckFree
will continue to pay the bills and any other bill the consumer wants to pay through the computer.
Mark: Nonetheless, the banks can't be expected to restrict activities to the narrow niche. If they
have the ability to enable electronic bill paying, they will do it.
The difficult with it, it is like any other back room banking operation, processing credit cards or
mortgages. It is a scale business and even the largest banks can't come close to the scale
CheckFree brings to it. They want to do this as cheaply as possible, outsourcing to a provider to
provide the expertise and experience by specializing, but lower the prices by spreading the cost of
the infrastructure.
Vince Farrell: It is Vince Farrell. If I understand correctly, you signed up most of the banks for your
quote, pay anyone services.
That's right, we have nine out of the top ten and 350 banks across the country.
Vince Farrell: That is where more of your revenue has come.
That is well all the revenue comes.
Vince Farrell: Is that attacked by the exchange?
Not even a little.
Vince Farrell: Not even a little. What do you do having canceled the offering. You are clearly
raising money for a reason and now you don't have the money.
We had back in October spent about $37 million to buy back our stock at six. That turned out to a
pretty good investment by us, but did take away the cushion in the treasury. We had announced
doing this offering was not necessary to support the operating plans, but would strengthen our
balance sheet. We will have plenty of time to reassess the landscape, look at how the equity
market is developing, and make some decision at a later time.
Vince Farrell: What is the debt burden you have now?
Virtually zero.
Vince Farrell: Do you have any obligation to the shareholders that bought the stock and maybe
sold it before delivery, so they are quote now short? There was an article in the paper about that.
Anybody who asked to have stock in the secondary, ordered it had at $39. If they sold it sort, they
were able to cover the short. Yesterday's high was 34 1/2, so they were able to cover the short
comfortably and by calling off the secondary, we transformed, I hope, shareholders and investors
who were very unhappy to people that were somewhat relieved.
Mark: David Faber.
David: The market had two days to judge this move by the Exchange and yesterday you didn't
rebound. Somewhat surprising by the analysts said it may not be that important to your business.
What is the market missing in regard to its response?
There are a number of things that go on. In today's market, once a company begins to lose
momentum, there are a number of investors who will sell into that without careful consideration of
the facts. Analysts, particularly Jim Marks at Deutsch Bank, have written very thoughtful an
insightful notes that explain what the dynamics are, but in the Internet, a complicated very fast
moving market and some people, its easier to sell sometimes than try to understand it.
David: You expect over time, the stock will come back after people realize the potential
competition is not what they thought?
Exactly.
David: With regard to the timing of the secondary, I know your CEO, Mr. Chrooit, said yesterday,
we had no knowledge, this announcement was expected. Why wasn't there more knowledge,
given the fact you are very close the banks. They are some of your key customers. Why didn't
you know and perhaps you should have.
We wish we did know, so we could explain to the market what the important significance was and
avoided this. You have to remember that banks are large organizations. We deal with the retail
side of the bank who deals with customers trying to pay bills electronically. The corporate side of
the bank that does treasury management for their customers is really the side of the bank that
was pushing this and our whip relationship was that side of the bank are not nearly as close.
Mark: The banks that announced this exchange are about 20% of your revenues.
We had announced that they were less than that, substantially less than that, but all the revenues
that they contribute are for bill payment, not electronic bill presentment. The billers pay for that,
not the banks and that stream of revenue isn't the least bit effected or threatened.
Mark: So, you do not lose any revenues as a result of this announcement.
Not a penny.
Mark: And it is your position that even if the banks have the technology to come at you, they are
not going to do it.
It is not a technology business, it is a service processing business, doing that efficiently, even the
largest banks can't achieve that.
Mark: Our thanks to Allen Shulman, Chief Financial Officer of CheckFree holdings. |
