H&R Block Inc. moved Wednesday to strengthen its hand as a consumer financial services competitor by announcing an agreement to buy Olde Financial Corp., the fourth-largest U.S. discount brokerage company.
The cash transaction, valued at $850 million, would accelerate the tax preparation specialist's drive to deepen client relationships with financial planning and investment services, said Frank L. Salizzoni, H&R Block's president and chief executive officer.
The sale is expected to close by yearend, pending regulatory approval.
"The acquisition provides a critical capability necessary to leverage our many tax- and accounting-based advisory relationships," Mr. Salizzoni said in a conference call with analysts.
He added, "We are not purchasing Olde to be in the discount brokerage business."
Yet H&R Block stands to gain a sizable brokerage operation, Olde Discount Corp., as well as a 181-branch network in 35 states. Block would also gain control of SmartVest, the on-line brokerage that Olde is set to launch this year.
Detroit-based Olde has a retail sales force of 1,200 and 600,000 active customer accounts.
For Kansas City, Mo.-based Block, "it's a great step toward becoming a full-service financial provider," said Jordan W. Horoschak, commercial and consumer services analyst for Standard & Poor's Corp., New York. H&R Block has been moving in this direction for some time, he said.
Once associated solely with tax preparation for individuals, H&R Block has sought to diversify in recent years. It pulled back from a technology strategy that once had it owning the on-line services network Compuserve, now part of America Online, and Meca Software, a personal financial software pioneer that it sold to a group of banks.
This year, Block sold its $181 million Webcard Visa credit card portfolio to Providian Financial Corp., saying it did not fit in with tax-related financial planning.
The company's current focus is on a range of retail services that can be delivered to individuals with tax and accounting advice.
Though Block said in July that it was seeking a buyer for Option One Mortgage, the wholesale mortgage unit that it bought from Fleet Financial Group in 1997, it plans to retain retail mortgage capabilities to help serve the financial needs of individuals.
Last tax season, H&R Block offered financial planning at eight of its nearly 9,000 retail sites around the country. Next year, it plans to raise that number to 70 offices in the run-up to April 15. Though the tax function puts H&R Block in a unique position to know the consumer's complete financial picture, it is looking to move beyond the "seasonality" of its core business, said a company spokeswoman.
The access to tax information offers "wonderful cross-selling opportunities," said Dan Burke, a senior analyst at Gomez Advisors in Lincoln, Mass.
H&R Block, which currently has 16 million customers, is modeling itself after Primerica Financial Services, the Citigroup Inc. unit that targets middle-income investors, said Brian Schell, vice president, treasurer, and director of investor relations. Though there are currently no plans to acquire an investment management capability to round out its menu, Mr. Schell said, it is a possibility that the company might explore.
H&R Block already has roughly 250 financial advisers operating through its Block Financial Corp. subsidiary, including 200 brokers in Birchtree Financial Services, a Kansas City full-service brokerage it acquired last year.
Current plans call for Olde to retain its identity as a subsidiary of H&R Block, said the spokeswoman. However, Block will conduct a brand identity study. There are no plans for layoffs, she said.
For all the synergies, Block would be getting a firm with a regulatory past. In the mid-1990s, Olde was fined several million dollars for alleged sales-practice abuses. However, Block has carried out extensive due diligence and is confident that the broker's compliance status has been repaired since the incidents occurred in 1994 and 1995, the spokeswoman said.
