Option One Mortgage Corp., the subprime lender that H&R Block Inc. has agreed to sell to the private-equity firm Cerberus Capital Management LP, said it is cutting 615 jobs, or about a fifth of its work force, before the deal closes.
The unit said it is discontinuing its correspondent operation and will "focus its resources on the network of independent mortgage brokers who are its core customers."
As a result of the cuts, H&R Block will take a $19 million pretax charge for its current fiscal year, which started May 1, the Kansas City, Mo., tax preparation company said in a Securities and Exchange Commission filing last week. About $11 million of the charge will cover termination benefits, and $6 million will cover lease termination costs.
Last month H&R Block agreed to sell Option One to Cerberus for a $300 million discount to the unit's tangible value at the deal's closing. That transaction is expected to close by the end of October. An H&R Block spokesman said last week that the terms are unchanged.
Option One had $1.3 billion of tangible assets at the end of January, and the deal provides for an earnout of up to $300 million. H&R Block had been shopping the unit since November.
H&R Block also expects to close its retail mortgage unit, H&R Block Mortgage Corp., by the time the Cerberus deal closes. Last month H&R Block said it expected to book $25 million of pretax charges in connection with closing the unit, mostly to cover severance and facilities closure costs. The shutdown will eliminate roughly 600 jobs.
Last week Warren Buffet's Berkshire Hathaway Inc. reported in an SEC filing that its H&R Block holdings shrank 69.7% from the end of last year and 88.6% from Sept. 30, to 1.2 million shares as of March 31.
