May 23, 2011 4:14 PM

Justice Department Challenges H&R Block's Software Deal

Posted by Brian Baxter

UPDATE: 5/23/11, 6:05 p.m. The sixth and seventh paragraphs of this story have been updated with information from H&R Block, which is being advised on antitrust issues by Willkie Farr & Gallagher.

Federal government antitrust enforcers are challenging a $288 million deal by H&R Block to acquire 2SS Holdings, maker of TaxAct software.

The National Law Journal, a sibling publication, reports that the Justice Department filed a civil antitrust suit in U.S. district court in Washington, D.C., on Monday seeking to block a transaction that would combine two of the three-largest companies specializing in tax return preparation.

Christine Varney, assistant U.S. attorney general for antitrust and a former Hogan & Hartson partner, said in a statement that completion of the deal would "destroy the head-to-head competition between these two companies, leaving only one other major competitor."

Kansas City, Mo.-based H&R Block and 2SS, which stands for 2nd Story Software, announced their proposed merger last October. A merger between both companies would leave Mountain View, Calif.-based Intuit, maker of personal finance programs like Quicken and TurboTax, as the sole remaining provider of tax preparation software for consumers.

SEC filings from last year show that Gary Gilson, chair of the M&A group at Husch Blackwell in Kansas City, Mo., advised H&R Block on its purchase of 2SS. Goodwin Procter business law chair and technology partner Jeffrey Hadden in Boston and corporate partner Kathy Fields in Menlo Park, Calif., served as counsel to 2SS on the deal.

A spokesman for Cedar Rapids, Iowa-based 2SS, which is owned by Boston-based private equity firm TA Associates, did not respond to a request for comment from The NLJ. An H&R Block spokeswoman said in a statement to The Am Law Daily that H&R Block "will explore all legal options" as a result of the Justice Department's actions. Willkie Farr & Gallagher is representing the company on antitrust issues.

"The Department of Justice today made a determination to stifle smart business growth," said H&R Block president and CEO William Cobb. "We're especially disappointed with this decision knowing that the DOJ rejected guarantees that we would not raise TaxAct's prices. Contrary to the DOJ's position, the synergies and enhanced functionalities realized from this merger would create a more competitive landscape for tax preparation. We continue to believe this merger makes sense, is pro-competitive, and will greatly benefit consumers."

Sibling publication Corporate Counsel reported last year that H&R Block's former general counsel Brian Woram, now the top in-house lawyer at Los Angeles-based homebuilder KB Home, stepped down less than a year after joining the company in August 2009. (James Ash, a Husch Blackwell corporate partner, is serving as interim general counsel for H&R Block.)

The NLJ reports that the Justice Department's move to block the deal between H&R Block and 2SS comes after the antitrust division recently sought to block a proposed $11.3 billion purchase of NYSE Euronext by Nasdaq, and this month stepped in to stymie secure electronic payment provider VeriFone Systems's $485 million acquisition of rival Hypercom.

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