Breeden Wants Seats on H&R Board

Updated from 1:44 p.m. EDT

H&R Block(HRB Quote) jumped 4% Wednesday on news that activist hedge fund Breeden Partners is looking to add three people to the tax-services provider's board.

The Greenwich, Conn.-based investment firm said in a regulatory filing that it intends to nominate its founder -- former Securities and Exchange Commission Chairman Richard Breeden -- and two others as directors at H&R Block's annual shareholder meeting in early September.

Breeden Partners and its affiliated investment funds, which are managed by Breeden Capital Management, own 6 million shares, or 1.86%, of the Kansas City, Mo., company.

H&R Block has been suffering from losses associated with its mortgage business. The company agreed in April to sell its struggling subprime unit, Option One Mortgage, to private-equity outfit Cerberus Capital Management. It also plans to shut down its retail mortgage operations.

For the quarter ended April 30, the company posted a loss of $86 million, or 26 cents a share, fueled by hefty losses on its mortgage businesses.

"While H&R Block is widely known for its market-leading tax preparation services, its efforts to diversify into activities including subprime mortgage lending, securities brokerage and banking have resulted in substantial lost shareholder value," said Richard Breeden in the SEC filing.

"H&R Block's stock has significantly underperformed the S&P 500 index for the five years ended June 15, 2007," he added. "As shareholders, we believe that five years is long enough to wait for H&R Block to achieve attractive returns for shareholders. This board needs fresh perspectives and new energy, which we intend to supply, to tackle the company's problems."

Due to H&R Block's staggered board, only three of the company's 11 incumbent directors are up for re-election in 2007.

H&R Block said in a statement emailed to TheStreet.com that it welcomes "input from all of our shareholders."

The company added that it has met with the hedge fund's executives, including Richard Breeden, on several occasions to "review publicly available information regarding H&R Block."

Breeden is no stranger to getting on troubled companies' board of directors. Last month, Breeden succeeded in gaining two seats on the board of Applebee's(APPB Quote). The restaurant chain also agreed to explore a company sale, at Breeden's prodding.

Shares of H&R Block were up 86 cents to $22.86 on Wednesday afternoon.