Justice Department Forces Intuit To Divest Credit Karma's Tax Biz To Square

The U.S. Justice Department will reportedly require Intuit Inc. INTU to sell its Credit Karma tax unit to Square Inc SQ as part of Intuit’s $7.1-billion buyout of Credit Karma.

What Happened: On Wednesday, CNBC reported that Intuit must divest Credit Karma’s tax unit in order for the Justice Department to approve the merger between Intuit and Credit Karma.

The Wall Street Journal reported in October that Credit Karma was in talks to sell its tax business to digital payment company Square.

Related Link: Analyst Says Square Shares Are Worth $300

Why It’s Important: Intuit’s TurboTax is the leading tax preparation software on the market, and the Justice Department reportedly had antitrust concerns about Intuit acquiring one of its faster-growing competitors.

Credit Karma reportedly has more than 100 million users and is best known for its free credit score business.

Morningstar analyst Julie Bhusal Sharma recently said the Credit Karma deal will be beneficial for Intuit, with or without the company’s tax business.

“The major synergies of Intuit acquiring Credit Karma would be derived from Credit Karma’s savvy behind personalized recommendation of loans, insurance, and credit cards, rather than tax preparation,” Sharma said.

“Credit Karma’s personalized recommendations would directly aid Intuit’s Mint and Turbo business, which makes money via similar personalized recommendations for financial products, and vice versa.”

The market seems to see the divestment as a win-win for both Square and Intuit given that both stocks were trading slightly higher Wednesday morning.

Benzinga’s Take: Intuit gets its deal approved and Square gets a fast-growing tax business at market price, so it’s understandable why investors would be happy on both sides. Given the modest size of Credit Karma’s tax business, Morningstar estimates it would have had a negligible impact on TurboTax’s overall numbers anyway.