HFS to buy Jackson Hewitt, nation's No. 2 tax preparer World's largest franchiser to pay $480 million in cash

November 20, 1997|By BLOOMBERG NEWS

PARSIPPANY, N.J. -- HFS Inc. said yesterday it has agreed to buy Jackson Hewitt Inc. for $480 million in cash, adding tax preparation to financial services such as mutual funds and mortgages.

Jackson Hewitt, the No. 2 tax preparer after H&R Block Inc., will join HFS's stable of well-known brands such as Century 21, Coldwell Banker, Ramada Inn, Days Inn and Avis Rent A Car Inc.

The $68-a-share offer caps a 16-fold increase in Jackson Hewitt's stock the past year.

HFS wants to become a one-stop outlet for a baby boom generation that's spending heavily on travel, real estate and financial services. Jackson Hewitt prepares about 1 percent of the 114 million tax returns filed every year, while H&R Block accounts for about 12 percent.

"HFS will be able to expand this into a major chain that can rival H&R Block," said Roger Lipton of Lipton Financial Services Inc. of New York, which owns Jackson Hewitt shares.

Shares of Jackson Hewitt rose $15.4375 -- 30 percent -- to close at $67.9375 in trading of 2.1 million shares, more than 11 times the three-month daily average. The offer is a 32 percent premium to Jackson Hewitt's Tuesday closing price of $51.50.

The agreement comes after a 1,574 percent rise in the value of Jackson Hewitt's shares in the past year, topping all U.S. stocks with a market capitalization of at least $100 million.

Jackson Hewitt fits HFS's strategy of acquiring companies that franchise their businesses. HFS, the world's largest franchiser, typically consolidates back-office functions such as accounting and gives the franchisees access to discounts for services such as long-distance telephone service.

HFS's shares rose 25 cents to $68.0625.

HFS is combining with CUC International Inc., the nation's largest direct marketer, in an $11 billion transaction expected to close in December.

In April, HFS bought PHH Corp., a top provider of mortgages and relocation services, for $1.83 billion. And in August, it created a mutual fund company whose products HFS will market.

Jackson Hewitt plans to comb the 71 million names in CUC International's files who could be given incentives to use its services.

"Most of them are in the United States and most of them file tax returns," said Henry Silverman, HFS' chairman and chief executive.

The purchase is expected to add half a cent to earnings per share by next year and 1 or 2 cents in 1999, he said.

HFS has spent more than $4 billion in two years on acquisitions, not including its transaction with CUC.

"We have said we wouldn't do any big scary acquisitions or acquisitions out of our core competency," Silverman said. "This isn't big or scary, and it's in our core competency."

Pub Date: 11/20/97

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