H&R Block, Cerberus End Option One Deal

Shares of Block are dropping 7.5% in early trading.
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H&R Block's

(HRB) - Get Report

stock was dropping after it called off plans to sell its Option One Mortgage unit to an affiliate of Cerberus Capital Management.

The sides had agreed on the deal in April, but that was before the downturn in the mortgage arena hit full stride. In recent months, they "worked to identify mutually acceptable alternatives" for restructuring the agreement, but they couldn't reach a new pact.

Shares of H&R Block were sliding 7.5% to $18 in premarket trading Tuesday.

Option One had already substantially cut back on its new lending, and now H&R Block says it will halt all remaining origination activities and has stopped taking new loan applications. With that being the case, H&R Block will let go about 620 workers, close three offices and take a pretax restructuring charge of roughly $75 million.

Richard Breeden, who was named chairman late last month after Mark Ernst resigned under pressure, said in a statement that H&R Block is determined to "complete our exit from subprime mortgage lending without further delay, and today's action largely completes that objective."

Breeden and two allies were elected to H&R Block's board in September, partly with the goal of refocusing the Kansas City, Mo., company on its core tax-preparation business.

H&R Block will continue to pursue the sale of its servicing operation. The company is currently finalizing the estimated fair value of the servicing business, which will result in an additional asset impairment for the second quarter ended Oct. 31. H&R Block doesn't think the impairment will exceed $125 million, before taxes.