H&R Block, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by H&R Block, Inc. on November 7, 2011, regarding events occurring on November 3, 2011. The filing details the entry into a Material Definitive Agreement concerning the sale of the Company's tax and consulting services business.
Key Financial Metrics and Transaction Terms
The Company entered into an Agreement and Plan of Merger to sell its indirect wholly owned subsidiaries, RSM McGladrey Business Services, Inc. ("RSMBS") and RSM McGladrey, Inc. ("RSM"), to McGladrey & Pullen LLP ("M&P").
- Total Consideration: Approximately $500 million in cash plus a subordinated note and a working capital adjustment.
- Subordinated Note: Estimated at approximately $60 million, representing amounts currently payable to RSM by M&P and its partners.
- Note Terms: Accrues interest at 8% annually, paid in kind semiannually. Principal and accrued interest are payable approximately five and one-half years following closing.
- Cash Retention: RSMBS will maintain all cash on the balance sheet of the companies being sold as part of the consideration.
Material Changes and Transaction Structure
Prior to this agreement, RSM and M&P operated in an alternative practice structure where RSM provided tax and consulting services while M&P provided audit services. This relationship will terminate upon the closing of the Merger. The transaction involves the merger of M&P Sub with and into RSM, with RSM continuing as the surviving entity and a subsidiary of M&P.
Outlook, Risks, and Covenants
The transaction is subject to customary closing conditions, including the expiration of the Hart-Scott-Rodino Antitrust Improvements Act waiting period and regulatory filings.
- Termination Date: Either party may terminate the agreement if the transaction does not close by December 31, 2011.
- Non-Compete: The Company and RSMBS have agreed to a three-year non-compete covenant following the Merger, prohibiting competition with the sold business and solicitation of its clients, subject to the Company continuing its current business operations.
- Indemnification: The Company and RSMBS will indemnify M&P for losses related to certain breaches of representations, warranties, and covenants.
The filing text does not provide specific revenue, profit, or cash flow metrics for the Company's overall operations, as this report focuses solely on the definitive agreement.
Key Facts for Investor Verification
- Verify the final closing date and whether the transaction closes before the December 31, 2011 termination deadline.
- Confirm the final working capital adjustment amount to be determined 30 days after closing.
- Monitor regulatory approvals required under the Hart-Scott-Rodino Act.
- Review the impact of the three-year non-compete covenant on the Company's future strategic options in the tax and consulting sectors.
- Assess the accounting treatment of the $500 million cash consideration and the $60 million subordinated note in future financial statements.