Zacks_Analysts' Blog : H&R Block Halts TaxACT Buy - Analyst Blog

After a long wait, H&R Block (HRB) is dropping its plan to acquire 2SS Holdings, Inc, developer of TaxACT digital tax preparation solutions in a  $287.5 million all cash deal according to media reports. The decision came after the federal judge  passed a ruling against it on antitrust grounds. However, H&R Block might not pay early termination penalties.

The acquisition was intended to augment the company’s digital tax offerings as well as performance. The company had plans to form a single unit by combining its H&R Block At Home digital business and the acquired TaxACT business.

Had the acquisition materialized, there would have been only two giants – H&R Block and Intuit Inc. (INTU) – controlling more than 90% of the market, thereby leaving  customers with less choice.

On the flip side, H&R Block would have an enlarged client based. Also, the merger would have heated up competition in the digital market, which is presently dominated by Intuit Inc. In fiscal 2011, growth in digital space was 13.5% with online growth accelerating 29%.

In its fiscal first quarter of 2012, H&R Block reported an adjusted loss of 37 cents per share, narrower than the Zacks Consensus Estimate of a loss of 39 cents. Results however, compare unfavorably with the loss of 35 cents incurred in the year-ago period. Lower revenue coupled with higher expenses affected the quarter.

The Zacks Consensus Estimates for second-quarter 2011 is a loss of 35 cents per share. For fiscal years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $1.55  and $1.75.

The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Kansas City, Missouri, H&R Block Inc. is a leading provider of tax preparation services. Through its subsidiaries, the company provides tax, retail banking, accounting plus business consulting services and products in the U.S., Canada and Australia.