SAN FRANCISCO -- In a major setback for Microsoft Corp., the Justice Department filed an antitrust lawsuit yesterday to block the company's planned $2 billion acquisition of Intuit Inc.
The Justice Department opposes the merger -- which would be the largest ever in the software industry -- on the grounds that it could lead to higher prices and fewer consumer choices in the market for personal computer software used for balancing checkbooks, tracking investments and other financial housekeeping tasks. Intuit's Quicken, the leading personal finance software program, and a similar Microsoft program called Money together control more than 90 percent of the market.
Quicken also is the most popular program so far in the emerging market for electronic banking from home computers -- a field in which Microsoft, the world's largest personal computer software company, has hoped to become a leader.
Microsoft and Intuit said yesterday that they would oppose the Justice Department's suit and push for a speedy trial in an effort to consummate their merger, which was announced last October.
The Justice Department's action against Microsoft stood in sharp contrast to a separate legal proceeding in which the department and the company stood side by side in a federal appeals court just Monday.
In that case, the company and the government were jointly defending an antitrust settlement they reached last year, which industry critics had regarded as too lenient toward Microsoft. A federal judge rejected the settlement in February.
But legal experts said yesterday that the appeals court case argued on Monday and the lawsuit filed yesterday, despite any surface similarities, involved two legally distinct issues and that there was no inherent contradiction in the Justice Department's actions.
William Gates, Microsoft's chairman and chief executive, said yesterday in a telephone conference call with reporters that "our enthusiasm for bringing Intuit and Microsoft together is very, very strong, exactly as it was when we first announced the plan to come together."
In opposing the Intuit merger, the Justice Department said that Microsoft's proposed solution to antitrust concerns was inadequate. Microsoft, whose Money program has a 20 percent share of the personal-finance software market, had said it would cede that program to Novell Inc.
But industry critics had attacked that plan, noting that while Novell is a leading provider of software used in corporate computer networks, it has a much more limited role in the consumer software business and no personal-finance package of its own.
L The Justice Department apparently agrees with those critics.
"This so-called fix just won't work," Anne Bingaman, the assistant attorney general in charge of the antitrust division, said yesterday.
"Novell simply can't replace Microsoft -- with its leading position in the personal computer software industry -- in competing against an entrenched dominant product like Intuit's Quicken."
Microsoft agreed to acquire Intuit last October, planning to pay with shares of Microsoft stock then valued at about $1.5 billion and now worth some $2 billion, based on subsequent increases in the market value of the shares.
Intuit's stock plunged $10.25 yesterday to close at $72.75, while Microsoft shares lost $1, to $78.625, in trading on Nasdaq.
When it was announced last fall, the deal immediately drew the ire of competitors and other industry experts, who said it showed Microsoft's ruthless determination to own every part of the software market, even going so far as to pay a 100 percent premium to acquire Intuit.
Should it succeed, the Justice Department's suit will create a serious obstacle to Microsoft's strategy to command the emerging world of electronic on-line commerce, in which people would use personal computers and modems to conduct banking and other financial transactions.
In acquiring Intuit, Microsoft would have gained not only seven million loyal Quicken users, but also an established entry into electronic banking, bill paying and other on-line transactions.
By levying a fee of only fractions of a cent for each transaction, the software giant could have reaped billions of dollars in revenue.