Nov. 1 (Bloomberg) -- H&R Block Inc. was barred by a federal judge from proceeding with its proposed $287.5 million acquisition of the maker of TaxAct products because it would diminish competition in the tax preparation market.
U.S. District Judge Beryl Howell in Washington yesterday supported a bid by the U.S. Justice Department to stop the deal. The department argued in a non-jury trial that the acquisition of closely held 2SS Holdings Inc. would cut competition by eliminating a company that vied aggressively with H&R Block and “disrupted” the digital do-it-yourself tax-preparation market with low prices and product innovation.
Howell granted a permanent injunction, saying the “evidence before the court, including documents and factual and expert testimony” showed the proposed purchase violated antitrust law. She ordered that her opinion remain temporarily sealed until the parties have a chance to redact confidential information.
The transaction would have left Kansas City, Missouri-based H&R Block and Intuit Inc., whose TurboTax product is the most widely used digital and on-line software for tax preparation, as the two dominant companies in the market, the department said in its lawsuit. That could lead to higher prices and collusion, Joseph Wayland, the deputy head of the antitrust division said at the trial that began Sept. 6.
’Victory’ for Consumers
“This is a victory for the more than 40 million consumers who use digital tax preparation software to prepare their tax returns,” Sharis Pozen, the acting head of the Justice Department’s antitrust division, said in an e-mail. “At trial, the department presented evidence that this is a highly concentrated market and that going from three to two competitors would be anticompetitive, leading to higher prices and lower quality services for consumers.”
The case against H&R Block led to the department’s first trial in seven years seeking to stop a merger. The last time the Justice Department went to court with a merger case was in 2004 when it failed to stop Oracle Corp.’s $8.4 billion purchase of PeopleSoft Inc., according to the Justice Department.
Wayland, who joined the antitrust unit a year ago from Simpson Thacher & Bartlett LLP in New York, is leading the department’s lawsuit seeking to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc.
“We are disappointed with the decision and continue to believe this was in the best interest of consumers,” Gene King, an H&R Block spokesman, said in an e-mail. “We are taking time to analyze the verdict to determine our immediate next steps.”
During trial, H&R Block’s lawyer, J. Robert Robertson of Hogan Lovells in Washington, told the judge that the Justice Department mischaracterized evidence and used “sound bites” from internal documents.
H&R Block, which has said the deal would 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.
The department argued that the only market for Howell to consider in her review of the deal is the digital tax preparation market. 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.
The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court, District of Columbia (Washington).
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