In its concerted effort to augment the nperformance of its core tax business, H&R Block Inc. (HRB) has decided to divest RSM McGladrey to McGladrey & Pullen, LLP for a consideration of $610 million. The transaction is expected to close by the end of 2011.
Of the total transaction value, H&R Block will finance $65 million. McGladrey & Pullen will absorb all liabilities, including contingent payments and lease obligations.
Pursuant to the sale, H&R Block will record non-cash, after-tax charge of $53 million or 17 cents per share in the fiscal first quarter ended July 31, 2011. The Zacks Consensus Estimate for fiscal first-quarter 2012 is a loss of 39 cents per share.
RSM McGladrey has not been able to post revenue growth over the past few quarters. In fiscal 2011, revenue declined approximately 6% from 2010. As such, the company has decided to vend off RSM McGladrey as it believes the divestiture is in the best interest of H&R Block and its shareholders. The company also expects an improvement in its overall margin following the divestiture. Pretax margin at Tax Services was 27% while it was only 6% at RSM McGladrey in fiscal 2011.
H&R Block acquired RSM McGladrey in 1999, from McGladrey & Pullen, to diversify from its core operations of tax filings. RSM McGladrey offers accounting, tax and consulting services to middle-market companies.
We believe that the company is poised to benefit from the restructuring initiatives. Furthermore, the company’s leading position in the tax preparer market, its strategic initiatives to grow its business by gaining and retaining customers and its cost containment measures augur well for long-term growth. Additionally, its focus on procuring and retaining clients will help it to grow its top line.
We remain “Neutral” on H&R Block. 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 and business consulting services and products in the U.S., Canada and Australia. It competes with Intuit Inc. (INTU).
BLOCK H & R (HRB): Free Stock Analysis Report
INTUIT INC (INTU): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment