2nd UPDATE: Justice Sues To Stop VeriFone-Hypercom Deal

The U.S. Justice Department filed an antitrust lawsuit Thursday to block VeriFone Systems Inc.'s (PAY) proposed $485 million acquisition of Hypercom Corp. (HYC), arguing that the deal would harm competition in the market for payment terminals used by retailers to accept credit and debit cards.

The news sent the companies' shares down. VeriFone closed down 6.7% at $46.64 while Hypercom shares closed down 12% at $9.59.

The Justice Department said the two companies control more than 60% of the U.S. market for point-of-sale terminals used by the largest retailers.

The companies had sought to address potential antitrust concerns by agreeing to sell Hypercom's U.S. business to Ingenico SA (ING.FR), the largest worldwide provider of such terminals. The Justice Department, however, said the proposed fix to the merger was inadequate, noting that Ingenico was the only other significant competitor to VeriFone and Hypercom in the U.S. market.

"The combination of VeriFone and Hypercom would likely lead to retailers paying higher prices for POS terminals," U.S. Assistant Attorney General Christine Varney, head of the department's antitrust division, said in a statement. "The proposed divestiture does not resolve the significant competitive concerns posed by the merger, and in some ways exacerbates them."

The lawsuit, filed in a Washington federal court, seeks to block the proposed merger as well as the related transaction with Ingenico.

If the transactions are allowed to proceed, VeriFone and Ingenico "would become so intertwined and codependent in the United States that they would operate more as affiliates than as competitors," the department said in court papers. It said the companies would become "a cooperative duopoly in full control of the sale of POS devices in the United States."

Representatives for VeriFone and Hypercom didn't immediately respond to requests for comment.

An Ingenico spokesman declined to comment.

VeriFone and Hypercom disclosed the proposed deal last November.

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; [e-mail]