Government Forces Showdown over H&R Block Merger with TaxActKen Berry
November 1, 2011 — 645 views
The government is seeking to block a proposed merger by H&R Block, the country's largest tax preparation firm, in its first antitrust action in seven years (U.S. v. H&R Block, Inc., 1:11-cv-00948, U.S. District Court, District of Columbia). The outcome will likely resonate loudly throughout the industry.
The lawsuit is seen as a litmus test for the challenge to an even bigger merger between AT&T and T-Mobile. "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," said Joseph Wayland, deputy head of the Department of Justice Antitrust Division. "This merger totally lacks any redeeming features." The last time the department tried a merger case was in 2004, when it failed to block Oracle Corporation's $8.4 billion purchase of PeopleSoft Inc.
The trial began on September 6, and closing arguments were heard on October 3. The presiding district court judge in Washington, DC, Judge Beryl Howell, expects to reach a decision by the end of the month.
Here's what's at stake: Last year, H&R Block announced a $287.5 million acquisition of 2SS Holdings Inc., the maker of TaxAct software. The proposed acquisition would eliminate the firm that had aggressively competed with H&R Block in the do-it-yourself tax preparation market, mainly through lower pricing and product innovation.
According to the Justice Department, as many as 40 million taxpayers used software to prepare and file their tax returns in 2010. It says that three companies account for 90 percent of all sales of digital, do-it-yourself tax preparation products. The purchase of TaxAct by H&R Block would combine the second- and third-largest providers of these products.
This would leave H&R Block and Intuit as the two major players in the marketplace. Intuit produces TurboTax, the most widely used digital and online software for tax preparation. It's suspected that the proposed merger could result in higher prices for consumers.
For its part, H&R Block points out that the tax preparation industry includes more than seventeen competitors. It also referred to the Internal Revenue Service (IRS)-sponsored Web site that promotes competition and offers free services to the public.
To prove that the deal violates antitrust law, the government must effectively show that the merger may reduce competition. The size of the H&R Block acquisition shouldn't matter in the determination of potential harm to consumers. Interested observers, including most members of the accounting profession, are awaiting the outcome.