ValueFind: Electronic Clearing House Inc.

After being abruptly left at the altar by a suitor several months ago, this scrappy small-cap play could provide its shareholders with a happy ending after all.

Last December, shares of Electronic Clearing House Inc. (Nasdaq: ECHO) shot sharply higher after the $94 million market capitalization company announced that it was being acquired by financial-management software giant Intuit Inc. (Nasdaq: INTU) for $142 million, or $18.75 a share. This acquisition price represented a 25% premium to the payment-processing company’s closing stock price before the deal was announced.

What had initially looked like a great deal for Echo shareholders turned into a big black-eye in March after Intuit and Echo mutually called off the merger agreement, sending Echo shares tumbling. While a specific reason wasn’t given for canceling the deal, Echo announced at the same time that it had signed a non-prosecution agreement with the U.S. Attorney’s office as part of a broader federal probe into “Internet wallet” companies. Internet- or "e-wallets" allow users to make electronic commerce transactions quickly and securely at e-commerce sites without having to disclose their payment information to the e-commerce site (third party). They became popular as a means of allowing U.S./European customers to access online gambling sites.

As part of Echo’s deal with the government, it also agreed to disgorge the $2.3 million in profits it had generated from Internet wallet companies, and to cooperate as a witness in the federal investigation into these companies and their role in facilitating online gaming.

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