H&R Block Announces Mutual Agreement to Terminate Sale of Option One Mortgage Corporation to Cerberus Capital
Option One to Cease Origination Activities and H&R Block to Record
Related $75 Million Pretax Restructuring Charge
Option One Reconfigured to Servicing Business Pending Future Sale
KANSAS CITY, Mo.--(BUSINESS WIRE)--Dec. 4, 2007--H&R Block, Inc.
(NYSE:HRB) announced today that it has agreed to terminate the
purchase agreement entered into in April 2007 (the "April Agreement")
under which an affiliate of Cerberus Capital Management, L.P.
("Cerberus") would have acquired Option One Mortgage Corporation
("OOMC"), a wholly owned subsidiary of H&R Block.
Throughout recent months, the Company and Cerberus worked to
identify mutually acceptable alternatives for restructuring the April
Agreement in light of the widespread changes in mortgage market
conditions and the substantial reduction in new lending by OOMC. These
discussions did not lead to a mutually acceptable agreement, and the
Company and Cerberus have agreed to terminate the April Agreement.
Under the termination agreement each party will bear its own costs in
connection with the proposed transaction, and the parties exchanged
mutual releases. All negotiations between the parties have been
concluded in a fully amicable manner.
As previously disclosed, OOMC had previously substantially
curtailed its new lending activities. The Company announced today that
it will close all remaining origination activities of OOMC. To this
end, the Company has already halted the acceptance of any new loan
Richard C. Breeden, Chairman of the Board of H&R Block, said, "The
Company is determined to complete our exit from subprime mortgage
lending without further delay, and today's action largely completes
that objective. The mortgage market today has undergone vast changes
since last April when the original Cerberus deal was signed. Despite
the hard work and good faith of both sides we could not find a way to
restructure the original transaction to mutual satisfaction. The
termination agreement frees H&R Block to halt OOMC's remaining
origination activities without incurring additional operating costs.
At the same time, we will continue to pursue the ultimate sale of our
servicing activities. The H&R Block Board determined this outcome was
in the best interests of our shareholders, and we hope it will
ultimately lead to higher value than we could have achieved through a
renegotiated Cerberus transaction."
Termination of Loan Origination Activities
Effective immediately, OOMC has ceased accepting new mortgage loan
applications. However, it will honor existing loan commitments in its
loan pipeline, consisting of approximately $30 million in principal
loan amount. OOMC believes that the majority of these pipeline loans
will be eligible for sale to Fannie Mae or Freddie Mac, with the bulk
of the remainder being prime loans eligible for sale in the ordinary
course. Upon funding loan commitments in process, OOMC will complete
its exit from all mortgage origination activities.
The closure of mortgage origination activity will result in
eliminating approximately 620 staff positions, closing three offices,
and taking a pretax restructuring charge of approximately $75 million.
The restructuring charge covers expected severance and lease
termination costs, write-off of property, plant and equipment, and
other related shutdown costs. Approximately $34 million pretax of this
restructuring charge will be incurred in the Company's fiscal second
quarter ending Oct. 31, 2007, with the remainder to be incurred
primarily in the Company's fiscal third quarter ending Jan. 31, 2008.
The Company also expects to incur pretax charges of approximately $7
million in its fiscal third quarter relating to restructuring
activities previously announced in August.
Sale of Servicing Activities
The bulk of the Company's servicing activities are carried out
with respect to loans owned by third parties. The Company has retained
the investment banking firm of Lazard to advise the Company in
connection with the ultimate sale of its servicing activities. The
Company is currently finalizing the estimated fair value of the
servicing business, which will result in an additional asset
impairment for the second quarter ending Oct. 31, 2007, which the
Company believes will not exceed an additional $125 million pretax.
New Leadership for Servicing Activities
As part of the changes in OOMC's business, Fabiola Camperi has
been named President of OOMC. Ms. Camperi currently serves as
Executive Vice President of operations for OOMC, where she has been
responsible for production and servicing.
Alan M. Bennett, Interim Chief Executive of H&R Block, commented,
"We have a great team in our servicing group at OOMC. We intend to
focus on running the servicing operation efficiently while pursuing an
orderly sale of our servicing activities. The Company appreciates all
the intense efforts by our staff during the Cerberus negotiations and
as we move forward. I also want to thank all our origination
associates for their efforts, and we wish them well in the future."
Mr. Breeden said, "The principal business of H&R Block is helping
millions of individuals and thousands of businesses meet their needs
in connection with tax planning and filing tax returns, not making
subprime mortgage loans. H&R Block's board is committed to maximizing
value for shareholders while exiting the subprime mortgage business in
an orderly manner."
About H&R Block
H&R Block Inc. (NYSE:HRB) is a leading provider of tax, financial,
and accounting and business consulting services and products. H&R
Block is the world's largest tax services provider, having prepared
more than 400 million tax returns since 1955. The company and its
subsidiaries reported revenues of $4.0 billion and net income from
continuing operations of $374.3 million in fiscal year 2007. The
company has continuing operations in three principal business
segments: Tax Services (income tax return preparation and related
services and products via in-office, online and software solutions);
Business Services (accounting, tax and business consulting services
primarily for midsized companies); and Consumer Financial Services
(brokerage services, investment planning and related financial advice
along with full-service consumer banking). Headquartered in Kansas
City, Mo., H&R Block markets its continuing services and products
under two leading brands - H&R Block and RSM McGladrey. For more
information visit our Online Press Center at www.hrblock.com.
Forward Looking Statements
This announcement may contain forward-looking statements, which
are any statements that are not historical facts. These
forward-looking statements are based upon the current expectations of
the Company and there can be no assurance that such expectations will
prove to be correct. Because forward-looking statements involve risks
and uncertainties and speak only as of the date on which they are
made, the Company's actual results could differ materially from these
statements. These risks and uncertainties relate to, among other
things, the termination of the origination activities of Option One
Mortgage Corporation; any disposition of the servicing business of
Option One Mortgage Corporation, in whole or in part; uncertainties in
the subprime mortgage industry and its impact on any operations of
Option One Mortgage Corporation that continue to be operated by H&R
Block; the liquidity demands associated with funding servicing
advances to loan pools serviced by the Company; potential litigation
and other contingent liabilities arising from Option One Mortgage
Corporation's historical and ongoing operations; uncertainties
pertaining to the commercial debt market; competitive factors;
regulatory capital requirements; the Company's effective income tax
rate; litigation; uncertainties associated with engaging a new auditor
(including the filing of the Company's Form 10-Q for the fiscal
quarter ended Oct. 31, 2007, within filing deadlines); and changes in
market, economic, political or regulatory conditions. Information
concerning these risks and uncertainties is contained in Item 1A of
the Company's 2007 annual report on Form 10-K and in other filings by
the Company with the Securities and Exchange Commission.
CONTACT: H&R Block, Inc.
Scott Dudley, 816-854-4505