America Online, Bertelsmann Plan Joint Venture

From Reuters

Bertelsmann said Wednesday it will form a European joint venture with America Online Inc. and is buying a 5% stake in the fastest growing U.S.-based provider of on-line computer services.

The news sparked a furious rally in America Online shares, which jumped $11.25 to close at $82.25, a rise of 16%, on the Nasdaq system.

Bertelsmann, a German media concern, said the two companies are setting up a 50-50 venture to provide on-line computer services in Europe, where far fewer PC users currently dial up on-line services than in the United States.

It says the venture will have about one million customers and revenues of nearly $700 million by the year 2000.

The deal gives Bertelsmann access to technology it needs to join the race for multimedia services that link computer, media and telecommunications. America Online gains a strong partner with vast film, television and publishing assets.

Bertelsmann said it will invest $100 million in the venture, which will be offered first in Germany, France and Britain with other European countries to follow. It says it may seek other European partners.

It also said it will pay $50 million for 5% of America Online, with an option to raise its stake to 10%. A Bertelsmann executive will hold a seat on the board of America Online.

Both companies said it is important to move fast to claim a stake in the fledgling European on-line market, which is expected to grow to $3 billion in just five years, industry experts say.

The venture is the latest set up to compete with CompuServe Inc., a unit of Columbus, Ohio-based H&R; Block Inc.

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