AOL Bid for CompuServe May Be in the Works
America Online, the largest consumer online service, may be considering a bid for No. 2 CompuServe, the company that launched the commercial online business.
Rumors of AOL’s interest in CompuServe swept financial markets Tuesday after a New York securities research firm, Wall Street Strategies, said a deal may be in the works.
The report sent CompuServe shares up $1.14 to close at $11 in Nasdaq trading. The rumors also boosted AOL’s stock by $3.25 to $45.75 on the New York Stock Exchange.
“We think that when the smoke clears, you will have Microsoft [parent of the rival Microsoft Network] and AOL as the only two providers of online services,” said Charles Payne, the firm’s president.
Such a deal would give America Online an almost insurmountable lead in the race to gather customers in the burgeoning online world. AOL has more than 8 million subscribers, and CompuServe claims 3 million. Microsoft Network, in contrast, hovers around the 2 million mark.
AOL spokeswoman Tricia Primrose declined to comment. Gail Whitcomb, a spokeswoman for CompuServe, said she was not aware of any negotiations.
But the lack of details didn’t discourage observers from talking up such a deal as logical.
Although Columbus, Ohio-based CompuServe was spun off from H&R; Block a year ago, the tax-preparation company still owns 80% of the stock and plans to sell it at some point. At Tuesday’s closing price, H&R; Block’s stake is worth nearly $815 million.
“Ideally, they wanted to improve the stock value before they got rid of the remaining 80%, but there has not been great news coming from the company, and I think they’re losing patience,” said Peter Krasilovsky, vice president of Arlen Communications, a new-media consulting firm in Bethesda, Md.
Indeed, CompuServe’s membership rolls are thinning and revenue is dropping. The company lost $14.2 million in the most recent quarter, in part because it shut down Wow, a consumer-oriented online service designed to compete with AOL.
If the rumors prove true, Dulles, Va.-based AOL could use CompuServe’s computer network to help alleviate its overcapacity problem, Krasilovsky said. AOL has pledged to spend $350 million on new modems to upgrade its network, but owning its own network could be considerably cheaper.
AOL also might covet CompuServe’s subscribers in Europe, where it has a strong lead with about 900,000 customers, he said.
Times wire services contributed to this report.
