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CompuServe, AOL in deal
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September 8, 1997: 2:47 p.m. ET
WorldCom buys CompuServe for $1.2 billion, to flip part to AOL
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NEW YORK (CNNfn) - H&R Block said Monday it will sell its 80 percent stake in CompuServe to WorldCom Inc. for about $1.2 billion in a complex deal that ultimately will turn over CompuServe's content and subscribers to America Online.
Under the deal, CompuServe shareholders, including H&R Block, will receive 0.40625 share of WorldCom stock for each share of CompuServe.
After that deal is completed, WorldCom will turn around and give America Online (AOL) all the CompuServe content assets and subscribers plus $175 million in exchange for AOL's Advanced Networks and Services division, which supplies about one-third of the network capacity for AOL's own customers.
The deal will add CompuServe's approximately 5 million home and business subscribers to AOL's pool of about 8 million customers. AOL is the world's largest online service provider.
Roger McNamee, general partner at Integral Capital Partners, said folding CompuServe (CSRV) into AOL's structure could be a challenge.
"The issue with CompuServe is its service is fundamentally different," said McNamee.
"You can't really bundle the two in terms of advertising yet. It's going to take some time to migrate those [CompuServe] customers to a format where America Online can take full advantage of it."
WorldCom (WCOM), a business telecommunications company based in Jackson, Miss., will be adding AOL's network unit to its own services and will retain CompuServe's Network Services division, which is comprised of about 100,000 ports used to support dial-up users as well as other corporate computer services, such as intranets.
The deal ends AOL's long journey toward acquiring its online rival. America Online has made attempts to purchase the service as recently as July. AOL made a $1 billion stock bid over the summer, which H&R Block (HRB) rejected.
The deal now faces regulatory review and could trigger concerns over AOL's vastly increased market share. But Adam Schoenfeld, senior analyst at Jupiter Communications, sees few hurdles for the deal.
"Even though America Online is the number one provider and CompuServe is the number two provider, there are thousands of Internet service providers ranging from the very small to the very large," he said.
"Those companies are not going away because of this deal, so I think there is still plenty of competition and the deal will probably be approved."
-- Randy Schultz
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