H&R Block, Breeden continue battle

H&R Block, Breeden continue battle

	Published : Tue, 31 Jul 2007 20:06 By : Agencies Print this Story

KANSAS CITY, Mo. (AP) - In dueling proxy statements Tuesday, H&R Block Inc. and dissident shareholder Breeden Partners LP continued to heat up the fight over Breeden's attempt to grab some seats on the company's board of directors.

In its definitive proxy statement filed with the Securities and Exchange Commission, the Connecticut-based hedge fund continued to argue that H&R Block's diversification into banking, mortgage lending and other side businesses had robbed the company of momentum and it should go back to focusing on tax preparation and advice.

The fund, operated by former SEC Chairman Richard Breeden, estimates the moves have cost shareholders $4.5 billion in potential profits over the past two years.

H&R Block's Chief Executive Officer Mark Ernst, in a letter to shareholders filed with the SEC, called the looming proxy fight 'distracting' and dismissed Breeden for owning less than 2 percent of the company's shares and yet wanting three of the board's 11 positions.

'In our view, Breeden Partners has put forth no new ideas to improve shareholder value,' Ernst wrote. 'In fact, many of Breeden Partners' proposed 'changes' are identical to actions your company announced and began implementing before Breeden Partners acquired a single share.'

For example, he pointed out that the company already is in the middle of selling its Option One Mortgage Corp. subsidiary, which has suffered in the subprime mortgage meltdown, and has cut back on other underperforming businesses.

Most distressing, Ernst said, was the belief Breeden would push to sell the company's year-old bank, which he said has given H&R Block an edge in attracting customers early in the tax season.

'Such an action would deprive H&R Block's shareholders of the bank's significant potential and would threaten the enhancement of shareholder value,' he said.

H&R Block shareholders are scheduled to vote on the board during the company's Sept. 6 annual meeting.

Last week, H&R Block asked federal officials to determine if Breeden's request for three board seats represented a potential conflict of interest because of his relationship with KPMG LLP, the company's auditor.

Breeden is overseeing KPMG's compliance with a deferred prosecution agreement on behalf of a federal prosecutor in New York.

While the agreement makes clear that Breeden is not an employee or officer of KPMG, H&R Block has argued that he still has enough influence over the auditing firm to violate regulatory requirements that an auditor remain independent from its client.

That, the company says, could require H&R Block to switch auditors in midyear, which it claims would be an expensive and disruptive event.

Breeden, who went back and amended his original proxy statements to add his involvement with KPMG, denies his position as monitor would trigger a change in auditors. Still, he said it wouldn't require as much trouble as H&R Block officials are alleging.

His position as monitor over KPMG ends in September 2008.

H&R Block shares were up 5 cents to $20.5 in afternoon trading Tuesday.