UPDATE: Justice Department Sues To Stop VeriFone-Hypercom Deal

The U.S. Justice Department filed an antitrust lawsuit Thursday to block VeriFone Systems Inc. (PAY) from acquiring Hypercom Corp. (HYC), arguing that the deal would mean less competition in the market for point-of-sale terminals.

The news sent the companies' shares down sharply.

The terminals are used by retailers to accept credit-card and debit-card payments.

The Justice Department said the two companies control more than 60% of the U.S. market for 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."

Representatives for the three companies didn't immediately respond to requests for comment.

The lawsuit was filed in a Washington, D.C., federal court.

VeriFone and Hypercom disclosed the proposed $485 million deal last November.

In recent trading, VeriFone shares were off 8% at $45.98 while Hypercom shares were down 14% at $9.31

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