By the end of August, it was clear that Cerberus Capital Management's buyout of H&R Block's (NYSE: HRB) Option One Mortgage unit was in trouble. Yesterday afternoon, the firms announced that the dead is dead.
In the original deal, announced in April, Cerberus agreed to pay H&R Block as much as $800 million for Option One Mortgage Corp., which focuses on subprime loans. This price represents a significant discount on the price H&R Block was originally looking for, said to be $1.3 billion.
An article in today's New York Times quotes H&R Block Chairman Richard Breeden as saying: "The mortgage market today has undergone vast changes since last April when the original Cerberus deal was signed. Despite the hard work and good faith of both sides we could not find a way to restructure the original transaction to mutual satisfaction." The deal's termination was reported to be amicable.
So it looks like this broken deal is another casualty of the ongoing credit crunch. Cerberus obviously couldn't make the numbers work given the increasing scarcity and higher cost of capital. H&R Block announced that it will lay off 620 employees at Option One and stop taking new mortgage applications. No word on the fate of Option One's loan servicing business, which was Cerberus's original target and may still hold some value.
Cerberus nixes Option One Mortgage buyout
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