July 1999 Issue

H&R Block Acquires McGladrey & Pullen

Will Be Largest U.S. Accounting Firm Acquisition to Date

H&R Block Inc. and McGladrey & Pullen LLP announced on June 29 that they have signed an agreement under which H&R Block will acquire substantially all of the nonattest assets of McGladrey & Pullen, the nation's seventh largest accounting and consulting firm. The transaction will be the largest accounting firm acquisition and the first combination of its kind between a major financial services company and a top 10 accounting firm.

Under the terms of the agreement, H&R Block will purchase most of McGladrey & Pullen's nonattest assets for $240 million in cash payments over four years plus the assumption of certain pension liabilities with a present value of approximately $50 million. H&R Block will also make contingency payments tied to future performance. The acquisition, which is subject to regulatory approvals and other normal closing conditions, should be completed in August.

McGladrey & Pullen is H&R Block's eighth accounting firm acquisition since May 1998 (See sidebar for a complete list of H&R Block's acquisitions).

"Combining McGladrey and Block's accounting practices significantly accelerates our shared strategy of building an industry-leading firm," said Frank L. Salizzoni, president and chief executive officer of H&R Block. "McGladrey will be a strong, well-capitalized competitor, and with this solid foundation in place, we will continue to expand our national practice."

Following the acquisition, Block intends to integrate its previously acquired accounting firms within HRB Business Services and McGladrey & Pullen into one firm known as RSM McGladrey Inc. This national accounting, tax, and consulting practice will share a single client service philosophy and have approximately 470 managing directors and nearly 4,000 employees in more than 70 offices nationwide. In addition, as the intended name indicates, RSM McGladrey will continue to be a prominent member of RSM International, the world's 10th largest accounting and consulting organization, with 400 offices in 75 countries. McGladrey & Pullen's attest business--including audits, reviews, and other engagements in which the firm issues written opinions evaluating client financial statements--will remain in a partnership owned by McGladrey & Pullen partners.

"We're excited about this business combination because H&R Block shares our vision of creating the leading national accounting, tax, and consulting firm serving mid-sized companies," said Mark Scally, chairman of the board and managing partner of McGladrey & Pullen.

"The transaction continues Block's long-term strategy to attract new customers and offer a diverse range of financial services through accounting-based service professionals," Salizzoni said. "We have already begun to develop financial products and services for our 16 million U.S. tax clients. Likewise, RSM McGladrey will develop appropriate additional products and services that meet the unique needs of their business clients."

Additional information on the H&R Block and McGladrey & Pullen LLP agreement can be found on www.hrblock.com and www.mcgladrey.com. *

Acquisitions by HRBBS Accounting Firms

Broker Dealer Acquisitions

Mortgage Company Acquisitions

Source: H&R Block Press Release