DATE: Thursday, November 20, 1997           TAG: 9711200454

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

DATELINE: VIRGINIA BEACH                    LENGTH:   93 lines

HFS TO BUY JACKSON HEWITT ERA, COLDWELL BANKER PARENT TO PAY $480 MILLION IN CASH. ATTRACTION WAS RAPID EXPANSION OF VIRGINIA BEACH-BASED TAX SERVICE.

Jackson Hewitt Inc., the tax-preparation service based in Virginia Beach, said Wednesday that it agreed to become part of a major provider of lodging and real estate brokerage services for $480 million in cash.

The offer from Parsipanny, N.J.-based HFS Inc. works out to about $68 for each of Jackson Hewitt's shares.

News of the agreement propelled the price of Jackson Hewitt's shares to a record high of $67.25 in heavy trading in the Nasdaq National Market. The stock closed at $66.94 - a gain of $15.44, or 23 percent, for the day.

HFS was attracted to Jackson Hewitt by its rapid expansion in a highly fragmented business, said Elliot Bloom, a spokesman for the franchiser of Ramada, Days Inn, Howard Johnson and other hotel chains.

``There are 114 million individual tax returns filed annually, and Jackson Hewitt has a 1 percent market share,'' Bloom said. ``The largest in the business, H&R Block, has a 12 percent share. We think there's lots of room for Jackson Hewitt to grow.''

HFS also can use its enormous data base of customer contacts to promote Jackson Hewitt's services, Bloom said.

``We come in contact with 100 million consumers a year with our hotels and real estate brokerages,'' he said.

In addition to franchising hotels, HFS sells and services franchises of the Century 21, ERA and Coldwell Banker real estate brokerages. It also has a financial-services unit that provides residential mortgage loans.

The Jackson Hewitt-HFS transaction, scheduled to close early in 1998, would have no immediate effect on the company's work force or operations in Virginia Beach. The two companies said Jackson Hewitt's headquarters and management will remain in place.

Jackson Hewitt has about 150 employees at its offices on Bonney Road near Independence Boulevard and hires additional workers during tax-filing season.

The company and its franchisees had 1,372 offices around the country open during the 1997 tax-filing season. Jackson Hewitt recently said it will have at least 1,900 offices open during the upcoming tax season. Most of these would be owned and operated by franchisees.

Securities analysts have steadily increased their projections of Jackson Hewitt's future earnings because of the strong sales of additional franchises this year.

Among the nation's tax-preparation chains, Jackson Hewitt is a distant second behind H&R Block, which has more than 8,000 offices in the United States.

Keith E. Alessi, Jackson Hewitt's chairman, president and chief executive, said HFS called him out of the blue in late August about a possible acquisition. The two companies eventually negotiated a deal, and Jackson Hewitt's five-member board unanimously approved it, he said.

``They expect the senior management to say on board,'' he said. ``I'm planning to stay.''

HFS will shortly begin a tender offer - a form of public solicitation - for Jackson Hewitt shares that will remain open until Jan. 5, Alessi said. If HFS rounds up 95 percent of the stock, a vote by Jackson Hewitt stockholders to approve the deal won't be needed, he said.

Jackson Hewitt and HFS will jointly prepare a document describing their agreement for distribution to shareholders.

For many Jackson Hewitt shareholders, the transaction would be a windfall. HFC's offer is more than 13 times the $4.75 price of Jackson Hewitt shares at year-end 1996.

To make it easier for investors to buy and sell shares, Jackson Hewitt had a public offering of 1.15 million shares in July at $21.25 each.

One of Jackson Hewitt's shareholders is Wilbanks, Smith & Thomas Asset Management Inc., an investment advisory firm in Norfolk that began accumulating the stock in late 1996.

Larry Bernert, a portfolio manager at Wilbanks Smith & Thomas, said the firm expected an eventual sale of Jackson Hewitt. ``We were surprised it happened so soon,'' he said.

Jackson Hewitt was attractive to a company like HFS because of the cash that it regularly generates but doesn't need, Bernert said. Although the company has to pay for marketing its services and upgrading its tax-preparation software, it doesn't have significant capital needs.

The only thing that could hamper Jackson Hewitt's expansion would be a sweeping change in the federal tax code, such as the adoption of a flat tax, Bernert said. ``I can't envision that happening,'' he said.

Jackson Hewitt evolved from a tiny chain of local tax-preparation offices founded in 1982. John T. Hewitt, a veteran tax preparer, bought the Mel Jackson Income Tax Service and improved the software used by its preparers. During 1986, the company began selling franchises and eventually changed its name to Jackson Hewitt.

Because of the agreement with HFS, it canceled plans to distribute a two-for-one stock split, Jackson Hewitt said. The additional shares were due to be distributed in early December. ILLUSTRATION: Graphic

STEVE EARLEY/File color photo

The Virginian-Pilot

JACKSON HEWITT

[For complete graphic, please see microfilm]

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