H&R Block prepares to sell unit back to original owner

KANSAS CITY, Mo. —H&R Block plans to sell its business consulting unit, RSM McGladrey, to accounting firm McGladrey & Pullen LLP for about $610 million, the tax preparer said Tuesday.

If a nonbinding letter of intent that H&R Block has signed leads to a finished deal, ownership of the consulting unit would return to McGladrey & Pullen, 12 years after H&R Block acquired RSM McGladrey.

Since 1999, McGladrey & Pullen has operated under an alternative practice structure with RSM McGladrey. Under that arrangement, RSM McGladrey has provided nonpublic accounting services, including most tax and consulting services, while McGladrey & Pullen provided clients with public accounting services such as audits.

Joe Adams, a managing partner with McGladrey & Pullen, said his company's relationship with H&R Block "has served us very well, but we both agree that it is time to move on."

Bill Cobb, H&R Block's president and CEO, said the transaction "is an important step in refocusing the company on growing clients and market share in our core tax business, and improving our margins."

RSM McGladrey employs about 5,000 people in more than 80 offices nationwide. The unit provides tax, accounting and wealth-management services to midsized businesses.

Of the $610 million sale price, H&R block will finance about $65 million. The Kansas City-based tax preparer said those amounts will adjust at closing based on fluctuations in the balance sheet. McGladrey & Pullen will also assume substantially all liabilities, including contingent payments and lease obligations.

In connection with the sale, as well as the sale or closure of RSM' McGladrey's remaining operations that are not part of the transaction, H&R Block will record a noncash, after-tax charge of about $53 million, or 17 cents per share, in the fiscal first quarter that ended July 31.

H&R Block reported in June that pretax income at its RSM McGladrey unit fell nearly 17 percent in the latest fiscal year to $49 million, while revenue at that segment fell 3.6 percent to $829.8 million. Companywide, H&R Block had $3.77 billion in revenue last fiscal year, down 2.6 percent from the previous year.

McGladrey & Pullen board chairman Jerry Bourassa said the board's goal is "to reunite the assurance, tax and consulting practices under an integrated McGladrey & Pullen partnership structure."

McGladrey, based in Bloomington, Minn., has more than 80 offices in 26 states. The firm was founded in 1926.