Tax preparation giant H&R Block Inc. will acquire the Tax & Business Services division of American Express, creating a combined firm with more than 5,000 employees and generating more than $1 billion in annual revenue.

Block will purchase the American Express division for approximately $220 million, and combine the business with subsidiary RSM McGladrey Business Services Inc. According to American Express, the sale will allow it to concentrate on its other lines of business, while Block will continue to target mid-sized clients.

"The demands placed on the Big Four accounting firms to serve their largest Fortune 500 clients have left too many mid-sized businesses without the dedicated resources they need," Block chairman and chief executive Mark A. Ernst said in a statement. "This transaction creates a firm that combines the resources and reputation of a national firm with a dedication to middle-market client success."

According to Block, AmEX TBS was established in 1985 and has posted steady growth over the past few years. The firm ranked No. 9 on Accounting Today's 2005 list of Top 100 Firms, with revenues of $385 million. With estimated revenues of $1.05 billion, the combined company will still remain well behind No. 4 firm KPMG (revenues of $4.12 billion), and comfortably in front of No. 6 firm Grant Thornton (revenues of $634 million).

"It's an outstanding opportunity for us," said Gerry Golub, chairman of AmEx TBS, whose New York-based firm, Goldstein Golub Kessler LLP, was acquired by AmEx in July 1998. "For AmEx, the investment opportunities in professional services firms were not as great as their other lines of business. But they were a great partner and we learned a lot from them. For us, we have a history in the New York area and across the country, it's a great fit with RSM."

The transaction is expected to close by Sept. 30, subject to approval from the Department of Justice.

On an unrelated note, Block also announced that it would be restating its net income for 2003 and 2004, due mostly to accounting errors.

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