Bloomberg News

H&R Block in Court Seeking Approval to Buy TaxAct Maker

September 06, 2011

(Updates with H&R Block arguments in eighth paragraph.)

Sept. 6 (Bloomberg) -- H&R Block Inc. asked a federal judge to reject U.S. attempts to block its purchase of the owner of TaxAct products, arguing the deal will improve its products and lead to low-cost alternatives for its customers.

In a trial in federal court in Washington today, H&R Block, the biggest U.S. tax-preparation firm, said the Justice Department was mischaracterizing evidence and using sound bites from internal documents in its request for an injunction against the company’s acquisition of closely held 2SS Holdings Inc.

“H&R Block is paying $287 million for TaxAct because it needs to lower its costs and become more competitive,” H&R Block’s lawyer J. Robert Robertson told U.S. District Judge Beryl Howell, who will decide whether the deal, valued at $287.5 million, violates antitrust law.

The Justice Department said the acquisition, announced in October, would eliminate a company that has competed aggressively with Kansas City, Missouri-based H&R Block and “disrupted” the U.S. digital do-it-yourself tax-preparation market through low pricing and product innovation.

Joseph Wayland, deputy assistant attorney general of the Justice Department’s antitrust division, told the judge that the transaction would leave H&R Block and Intuit Inc., whose TurboTax product is the most widely used digital and online software for tax preparation, as the two dominant companies in the market for digital consumer tax preparation.

Price Erosion

“The merger will likely lead to price increases and coordination between the remaining competitors,” Wayland said. H&R Block e-mails and other internal documents indicated the company was seeking to eliminate price erosion from TaxAct, he said.

The department asked Howell to ignore H&R Block’s arguments that digital tax preparation products are part of a larger industry that includes in-store tax preparation and those who file their taxes by hand and without assistance from accountants.

Last year, as many as 40 million taxpayers used digital software products to prepare and file federal and state income taxes, the department said in the lawsuit. Three companies account for 90 percent of all sales of digital, do-it-yourself tax preparation products, the department said.

The purchase of TaxAct by H&R Block would combine the second and third-largest providers of these products, according to the department’s complaint.

17 Competitors

H&R Block said in court papers that the department “ignores the contours of today’s tax preparation industry,” which it said includes more than 17 competitors as well as an Internal Revenue Service-sponsored website “promoting competition and free offers to the public.”

H&R Block said that the department isn’t considering the company’s rivalry with Intuit, which Robertson said has been targeting H&R Block’s retail store customers in television and online advertisements.

“That war is in the real world,” said Robertson, a partner at Hogan Lovells in Washington. “The government wants us to ignore it. We can’t, it’s in the market.”

The department has sought to block several transactions it viewed as anticompetitive this year. Last week it filed a lawsuit against AT&T Inc.’s proposed $39 billion takeover of wireless carrier T-Mobile USA Inc.

On May 12, it sued to block VeriFone Systems Inc. from buying Hypercom Corp. saying the proposed $485 million deal would hurt competition in the market for point-of-sale terminals. VeriFone reached a settlement with the department last month after agreeing to sell Hypercom’s U.S. point-of-sale terminal business.

Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. on May 16 abandoned their plan to buy NYSE Euronext after the department said it would challenge the deal in court. Had the transaction been completed, Nasdaq OMX would have gained a monopoly on stock listings in the U.S.

The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court, District of Columbia (Washington).

--Editors: Michael Hytha, Andrew Dunn

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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