Nov 3rd 2011
By Ken Berry
A district court judge has stopped H&R Block, the country's largest tax-preparation service, from buying out the maker of TaxAct software. The proposed deal would have eliminated a competitor that is undercutting the household name through lower pricing and product innovation.
Back in 2010, H&R Block announced the $287.5 million acquisition of 2SS Holdings Inc., the firm that produces TaxAct. The smaller firm had aggressively competed with H&R Block in the do-it-yourself tax-preparation market. But the Justice U.S. Department stepped in to block the merger. In the trial which began on September 6, 2011, the court said that the acquisition would give H&R Block an unfair advantage by joining the second and third largest providers of digital, do-it-yourself tax preparation products. For its part, H&R Block argued that the deal would improve its products and create low-cost alternatives for software purchasers.
Now U.S. District Court Judge Beryl Howard has sided with the Justice Department. Howell granted a permanent injunction against the proposed merger because the evidence -- including documentation and factual and expert testimony -- showed that the deal violated anti-trust law. The opinion will remain temporarily sealed until the parties have a chance to redact confidential information.
The merger would have left H&R Block and Intuit Inc., the maker of the popular TurboTax program, as the two dominant players in a top-heavy marketplace. According to Joseph Wayland, deputy head of the Justice Department's antitrust division, that could lead to higher prices and collusion. Thus, the Justice Department initiated its first trial against a merger in seven years.
The last time the Justice Department went to court to block a merger was in 2004 when it tried to halt Oracle Corp.’s $8.4 billion purchase of PeopleSoft Inc. That attempt was unsuccessful, but it has prevailed in the case at hand.
"We are disappointed with the decision and continue to believe this was in the best interest of consumers," said an H&R Block spokesperson. "We are taking time to analyze the verdict to determine our immediate next steps."