A federal judge in Washington today said the proposed $287 million merger between H&R Block and a rival company that also sells digital do-it-yourself tax preparation products would harm consumers.
Judge Beryl Howell of U.S. District Court for the District of Columbia ruled against H&R Block, Inc.’s proposed acquisition of Iowa-based 2SS Holdings, Inc., which sells a product under the brand TaxAct. Howell’s 86-page opinion is here.
H&R Block, TaxAct and Intuit, which makes TurboTax, are the three most popular providers of do-it-yourself tax preparation products, Howell said.
Antitrust enforcement officials said the proposed merger would have created a duopoly in the market, with H&R Block and Intuit controlling more than 90 percent of the industry.
“TaxACT’s competition does play a special role in this market that constrains prices,” Howell said. “Not only did TaxACT buck prevailing pricing norms by introducing the free-for-all offer, which others later matched, it has remained the only competitor with significant market share to embrace a business strategy that relies primarily on offering high-quality, full-featured products for free with associated products at low prices.”
The U.S. Justice Department’s Antitrust Division sued to block the merger in May. Howell presided over a nine-day bench trial in September that features thousands of pages of documents and eight fact witnesses.
Lawyers for H&R Block, represented by Hogan Lovells, argued among other things that the entry of additional companies into the do-it-yourself tax return industry would likely offset any anticompetitive effects of the proposed deal.
Eighteen companies offer services, but Howell said “most of these companies are very small-time operators.” Justice Department lawyers said the closest two competitors “are not in the same league as the ‘Big 3.’”
H&R Block’s lawyers, who included Hogan Lovells partners Corey Roush and J. Robert Robertson, also said the company would compete as aggressively post-merger as before to not lose customers to Intuit. The company’s attorneys told Howell that H&R Block would not raise TaxAct’s prices or change its free offering.
DOJ offered “stale, outdated claims of TaxAct as a ‘maverick to support its theory,” H&R Block’s counsel said.
DOJ Antitrust Division lawyers, including Joseph Wayland and Lawrence Buterman, presented TaxAct as a “maverick”—that is, an aggressive competitor that plays a “disruptive role” in the market to benefit customers.
Howell called TaxAct an “aggressive and innovative competitor” in the market. But she said other competitors, including Intuit and H&R Block, have also served as innovators in forcing companies in the industry to develop new products.
“The parties have spilled substantial ink debating TaxACT’s maverick status,” the judge said. “The arguments over whether TaxACT is or is not a ‘maverick’–or whether perhaps it once was a maverick but has not been a maverick recently–have not been particularly helpful to the court’s analysis.”
Roush, a Hogan Lovells partner who focuses on antitrust litigation, said H&R Block is disappointed with the decision, disputes facts in the ruling and is weighing its appellate options.
The Justice Department did not immediately comment this afternoon on the ruling, which comes several days after Howell granted a preliminary injunction blocking the proposed merger.