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Oct. 4 (Bloomberg) -- The government’s fight to keep H&R Block Inc. from buying the maker of TaxAct products gave the Justice Department unit seeking to block AT&T Inc.’s purchase of T-Mobile USA Inc. its first merger trial in seven years.
“It doesn’t matter whether it’s a relatively small transaction or a transaction involving billions of dollars, the law should be applied the same way,” Joseph Wayland, the deputy head of the antitrust division said in closing arguments yesterday. “This merger totally lacks any redeeming features.”
U.S. District Judge Beryl Howell in Washington said she expected to decide by the end of the month whether H&R Block’s $287.5 million acquisition of closely held 2SS Holdings Inc. violates antitrust law.
Howell’s ruling could serve as a template for the judge overseeing the government’s case against AT&T, which is scheduled for trial on Feb. 13, said Washington antitrust lawyer David Balto.
“If the Justice Department is unsuccessful, it could pose significant obstacles to its objection to the AT&T merger,” Balto said in an interview.
The lawsuits against AT&T and H&R Block are among a handful of occasions in the past decade when the Justice Department sued to block a merger. In the AT&T and H&R Block cases, Wayland, who joined the antitrust unit a year ago from Simpson Thacher & Bartlett LLP in New York, leads the litigation.
The last time the department tried a merger case was in 2004 when it failed to block Oracle Corp.’s $8.4 billion purchase of PeopleSoft Inc., according to the department.
Wayland told Howell yesterday that the proposed acquisition, announced last year, would eliminate a company that 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.
Wayland said the government must only show that the deal “may” reduce competition. The size of the H&R Block acquisition shouldn’t figure in the judge’s determination its potential harm to consumers.
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, Wayland said. That could lead to higher prices and collusion, he said, pointing to H&R Block e-mails and documents that he said showed the company sought to curb price erosion caused by TaxAct.
During a trial that began on Sept. 6, lawyers for H&R Block, the biggest U.S. tax-preparation firm, said the Justice Department mischaracterized evidence and used “sound bites” from internal documents.
H&R Block, which has said the deal will improve its products and create low-cost alternatives for customers, claims digital tax preparation products are part of a larger industry that includes in-store tax preparation and those who file taxes without accountants or software.
“We’re saying all methods of tax preparation are in the market,” H&R Block’s lawyer J. Robert Robertson told the judge. “They affect each other and it’s consumer choice that matters.”
Last year, as many as 40 million taxpayers used software to prepare and file their 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.
Wayland said it was “implausible” to consider assisted and digital tax preparation in the same market. He pointed to the company describing its competition separately as “Assisted Competitor Analysis,” and “Digital Competitor Analysis” in a presentation to the board last year.
“There may be larger markets, but the monopolist test, common sense, and the parties’ own documents established the relevant market is smaller,” Wayland said.
H&R Block said in court papers that yesterday’s tax preparation industry includes more than 17 competitors as well as an Internal Revenue Service-sponsored website “promoting competition and free offers to the public.”
Robertson, a partner at Hogan Lovells in Washington, said that those competitors would “love to get more customers” if TaxAct raises its prices. H&R Block said that the department ignores its rivalry with Intuit, which Robertson said targets H&R Block’s retail store customers in television and online advertisements.
“They do more tax returns than Block does,” Robertson said. “That’s where the battle is.”
The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court, District of Columbia (Washington).
--With assistance from Jeff Bliss in Washington. Editors: Fred Strasser, Michael Hytha
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