Reuters
IPO may open doors for No. 2 U.S. tax preparer
Thursday March 25, 2:11 pm ET
By Nicole Maestri

NEW YORK, March 25 (Reuters) - There is going to be a new
kid on the block later this year.

Cendant Corp. (NYSE:CD - News) said last week that it will
spin off Jackson Hewitt, the No. 2 U.S. tax preparer, in an
initial public offering in the second quarter of this year.

That means Jackson Hewitt will join top U.S. tax preparer H&R Block Inc.
(NYSE:HRB - News) in the tiny universe of publicly traded companies
whose core business is tax preparation. It also means Jackson Hewitt
will have new means to compete with its larger rival, including access
to the capital markets and greater exposure, experts said.

"A lot of us know Jackson Hewitt, but we think of them as a small
local office, not as part of a large profitable company" said
Francis Gaskins, of online newsletter IPO Desktop.
"It (being public) gives them visibility."

Jackson Hewitt focuses on preparing tax returns of low- and
middle-income Americans. Since becoming part of Cendant in 1998,
it has rapidly expanded its offices from roughly 1,900 to more than
4,900 franchise and company-owned offices today. Its offices can
often be found in local malls and retailers like Wal-Mart and Kmart.

The core element of its growth strategy is to expand its network,
adding new offices and buying already established tax businesses,
it said in its regulatory filing for the public offering. Being public
gives it the option of using its stock to acquire other companies
and its newfound independence from Cendant will give management
more control in running the business.

"It gives them more flexibility; otherwise they're kind of lost in a
$23 billion market cap company," Gaskins said, referring to Cendant's size.

Since Jackson Hewitt is in the mandated "quiet period," before
bringing shares to market, it could not comment beyond its filing
with the Securities and Exchange Commission (News - Websites) .

Once public, Jackson Hewitt will not only have a new way to pursue
its growth plans, it will also be required to report its financial results.
That will give analysts and investors a new way to measure how well
H&R Block is performing in comparison to its competitor.

"Why would someone want to buy H&R Block if Jackson Hewitt is
doing better and vice versa?" said David Menlow, president of
IPOfinancial.com, an online IPO newsletter.

STILL A DISTANT SECOND

But Jackson Hewitt, despite its expansion, is still a distant
second behind H&R Block.

It has 4 percent market share, compared with H&R Block's
 21 percent. In fiscal 2003, Jackson Hewitt reported revenue
of $171.5 million and net income of $41.13 million. In its fiscal
third quarter alone H&R Block, which also has a sizable mortgage
business operation, reported revenue of $977 million and net income of $106.7 million.

"H&R Block has a huge lead on Jackson Hewitt," said
Stuart McDermott, an analyst at Holland Capital Management,
which owns H&R Block shares.

And there is plenty of room for both Jackson Hewitt and H&R Block
to grow their businesses without taking market share from each other,
analysts said. H&R Block did not return calls for comment.

According to the IRS, approximately 131 million individual tax
returns were filed in 2003 but less than 60 percent were prepared
with the help of a paid tax return preparer. That number could rise
as tax rules become more complex and consumers seek help
to keep up with changing tax laws.

"Jackson Hewitt (will) probably concentrate on going for those
people that still don't go to a paid tax preparer," said Kartik Mehta,
an analyst with FTN Midwest Research. "I see it as a good thing for the market."