Hp To Buy Verifone Deal Gives Firms Leg Up In Electronic Commerce

Hewlett-Packard Co., staking a claim for the virtual gold mine of electronic commerce, said Wednesday it will buy VeriFone Inc., a leader in technology for making financial transactions over computer networks.

HP, the nation’s No. 2 computer company, will pay $1.15 billion worth of its own stock for VeriFone, its biggest acquisition ever. VeriFone will become an independent subsidiary of Hewlett-Packard if the deal closes this summer.

The companies said their alliance will combine the strengths of each to help consumers and businesses use the Internet and corporate intranets for making purchases and payments securely.

“We expect to leverage off each other to tremendous mutual benefit where we will sharply accelerate the evolution and acceptance of electronic commerce,” Hatim A. Tyabji, VeriFone’s chairman and chief executive, told analysts and reporters in a conference call.

VeriFone shareholders will get one share of HP common stock for each of VeriFone’s 23.3 million shares of outstanding common stock. HP stock fell $1.12-1/2 to $49.37-1/2 on the New York Stock Exchange Wednesday.

The announcement, which had not been expected, sent VeriFone’s stock up 58 percent on the New York Stock Exchange, rising $17.12-1/2 to $47.25 per share.

Hewlett-Packard, based in Palo Alto, Calif., makes a wide range of computers, computer printers and test-and-measurement equipment. The company, with $31.4 billion in revenue last year, is a leading supplier of computers and related services to businesses.

VeriFone, with $472.5 million in revenue last year, is best known as the leading maker of the small electronic readers that retailers use to verify credit cards. But it also is strong in two increasingly important areas of electronic commerce.

The Redwood City, Calif., company makes software enabling people to download electronic cash from their bank accounts through telephone lines to “smart cards.” Those plastic cards contain an embedded chip and can be used as cash or to make purchases over the Internet.

VeriFone also makes products that help bolster Internet security, keeping credit card or bank account numbers from falling into the wrong hands.

The companies on Wednesday declined to discuss what specific products or services might result from their partnership. But Rick Belluzzo, head of HP’s computer division, said his company was working on a number of projects that would get a boost from the deal.

HP and VeriFone likely would be “more aggressive” in finding ways to integrate smart-card technologies into computers, he said.

Analysts said the combination helps both companies. VeriFone’s technology gives HP entry into the smart-card business and improves its leadership in providing businesses with complete computer systems and services, they said.

Meanwhile, VeriFone - which has focused largely on consumers and financial services - is now able to penetrate the lucrative corporate market far more easily that it would have been able to on its own.

“I think this really shows … the importance of the Internet to a lot of companies’ strategies. The real driver to that is online payment solutions,” said David Weissman, an analyst with Forrester Research in Cambridge, Mass.

Hewlett-Packard and other computer companies, notably IBM Corp., are hustling to stake ground in the electronic-commerce market, expected to be a $95 billion business in the U.S. by 2000, according to International Data Corp.

The deal also could hasten the use of smart cards with computers, Weissman said.

The deal also raises the ante for other companies out for a piece of the electronic-commerce market. Allen Weiner, an analyst with Dataquest Inc. in San Jose, said he expects to see them form similar alliances or more aggressively publicize their plans.

“I think this is basically a warning shot at IBM and other companies that HP is positioning itself to be the full-scale provider,” he said.