H&R; Block to buy Olde for $850 million; Tax preparer moving further into brokerage business; Financial services


Kansas City, Mo. -- H&R; Block Inc. agreed yesterday to buy Olde Financial Corp. for $850 million in cash, to further diversify the largest tax-preparation company into stock brokerage.

Block shares fell $4.635 to close yesterday at $51, a two-month low, amid concern about fraud investigations and fines that Olde has faced. Analysts' also warned that Block might be taking on too much debt in a two-year diversification spree. The shares' 8 percent decline was the third-biggest in the Standard & Poor's 500 index.

Kansas City-based Block has bought eight accounting firms, two mortgage brokers and a stockbroker-dealer since June 1997. It plans to open 70 Block Financial Centers this year to offer financial planning, investment services and home mortgages, as well as tax preparation, to help generate more revenue after the tax season.

"This is just another step in the transformation of Block from a tax-preparation firm to a full-service financial services firm," said Alexander Paris Jr., an analyst at Barrington Research Associates.

Block has $1.3 billion of debt and had a debt-to-equity proportion in its fourth quarter of 30 percent, according to Egan Jones, which downgraded Block's debt rating to BBB+ from A-.

Moody's Investors Service put the debt under review for a possible downgrade, saying H&R; Block's effort to diversify brings "significant execution risk."

Block Chief Financial Officer Ozzie Wenich acknowledged that the Olde transaction "will cause us to do some borrowing" in the short term. He said Block plans to pay down some of that debt with the sale of its Option One wholesale mortgage unit, and he said ratings should be stronger after the sale because ratings companies view the wholesale mortgage business as risky. "The judgment on this [acquisition] needs a little more time," he said.

Detroit-based Olde Financial, a private company, owns Olde Discount Corp., the No. 4 discount broker. It has 1,200 representatives in 181 offices in 35 states and earned $33.2 million on $171.5 million of revenue in the first six months of this year, Block said.

Olde made headlines last year when the company, its founder and chairman, Ernest Olde, and two other top executives agreed to pay $7 million to settle charges that its management practices encouraged brokers to defraud investors.

Olde Discount brokers promoted high-commission stocks over lower-commission stocks more suitable to clients' needs, the U.S. Securities and Exchange Commission alleged, saying brokers who didn't sell the quota of high-commission stocks were forced to forfeit their clients to other Olde Discount brokers.

Olde Discount and one of its traders also were fined $35,000 by the National Association of Securities Dealers for harassing a competitor, and the New York Stock Exchange fined the company $1 million for bribing an exchange official to obtain waivers of job requirements for more than 285 employees from 1993 to 1995.

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