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H&R Block [HRB
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] said Friday it agreed to sell its Option One Mortgage unit to an affiliate of private equity firm Cerberus Capital Management, ending a months-long search for a buyer of the beleaguered subprime lender.
Cerberus, which created a company called OOMC Acquisition to execute the purchase, agreed to pay $300 million less than the value of Option One's tangible net assets, which was $1.27 billion at the end of January. The value will be calculated on the date of closing, which is expected to be Oct. 31.
Late Thursday, H&R Block, whose primary business is tax preparation services, said it expects a full-year loss because of charges reflecting the diminished value of Option One, which lends to people with poor credit. On Friday, H&R Block put those charges at $290 million to $320 million.
Subprime lenders have seen earnings dry up in recent months amid a surge in borrower defaults caused by falling home prices and higher interest rates. More than two dozen have gone bankrupt. H&R Block has been trying to get out of the business since last November and has trimmed operations at Option One, which is based in Irvine, Calif., by closing branches and cutting staff.
The deal does not include Option One's H&R Block Mortgage unit, which originates loans with retail customers. H&R Block plans to close that unit before the sale and take a pretax charge of $25 million to cover severance and closing costs.
H&R Block was advised by Goldman Sachs on the deal.
Separately, H&R Block reiterated Thursday it expects to report a net loss for fiscal 2007, hurt by a surge in defaults on subprime mortgages that resulted in a lower value for Option One.
The company expects to record a pretax, noncash impairment charge of $152.5 million on its investment in Option One.
On an adjusted basis, which excludes the charge, H&R Block expects earnings of $1.15 to $1.25 a share in the current fiscal year, which ends April 30.
Analysts polled by Thomson Financial are looking for profit of $1.17 a share.
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