* Three major firms in business for tax software
* DOJ says H&R Block sought to take out competitor
(Adds H&R Block comment, closing stock price)
By Jeremy Pelofsky
WASHINGTON, May 23 The U.S. Justice Department
filed a lawsuit on Monday to prevent H&R Block Inc (HRB.N) from
acquiring 2SS Holdings Inc, developer of the TaxACT digital tax
preparation business, because it would hurt competition.
H&R Block, the largest U.S. tax preparer, agreed to acquire
the company last October in a deal worth $287.5 million. The
company had previously estimated that the deal would have
increased its earnings per share by 5 cents.
However, the Justice Department's antitrust division said
the transaction would have led to higher prices, hurt
innovation and reduced product quality for those who wanted to
do their own taxes.
"TaxACT has aggressively competed in the digital
do-it-yourself tax preparation market with innovations such as
free federal filing," said Christine Varney, assistant attorney
general for the Justice Department's antitrust division.
"If this merger is allowed to proceed, that type of
innovation will be lost," she said in a statement.
H&R Block expressed disappointment about the Justice
Department's decision to challenge the deal and said that it
would explore all of its legal options.
"We're especially disappointed with this decision knowing
that the DOJ rejected guarantees that we would not raise
TaxACT's prices," H&R Block's President and Chief Executive
Officer William Cobb said in a statement.
"We continue to believe this merger makes sense, is
pro-competitive and will greatly benefit consumers," he said.
The company's online tax-preparation services, H&R Block At
Home software, competes with Intuit Inc's (INTU.O) TurboTax
software, which is gaining market share from H&R Block, and
with No. 2 player Jackson Hewitt Tax Service Inc JTX.N as
more people move to "do-it-yourself" models.
H&R Block, Intuit and TaxACT represent 90 percent of all
sales of consumer tax software products, according to the
The Justice Department accused H&R Block of touting in
presentations and emails that the acquisition would eliminate a
competitor and help "regain control of industry pricing..."
In a conference call with reporters, Varney declined to
disclose the source of those comments until they are presented
in court. She said that they showed the deal was meant "to
thwart competition in the tax software market."
The complaint against H&R Block said that TaxACT has
regularly expanded the free version of its filing software and
thus has forced its competitors to enhance their own similar
TaxACT also has forced its competitors to lower prices for
tax preparation products, the lawsuit said.
H&R Block shares were down as much as 4.2 percent after the
news of the government challenge. They later recovered much of
those losses before closing down 7 cents, or 0.4 percent to
$16.26 in regular trading on the New York Stock Exchange.
(Reporting by Jeremy Pelofsky, editing by Gerald E. McCormick
and Carol Bishopric)