CompuServe Says It’s in Talks on a Possible Sale
CompuServe Corp., the beleaguered No. 2 online service, confirmed Wednesday it is in talks to be acquired by another company, but would not name the suitor.
Industry leader America Online is widely believed to be the leading potential buyer, although Microsoft Network and AT&T;’s WorldNet service were also floated as possible candidates. CompuServe’s one-time parent H&R; Block has made no secret of its intent to sell its 80% stake in the company that pioneered the commercial online service business.
“H&R; Block and CompuServe Corp. are currently engaged in external discussions regarding a possible business combination involving CompuServe,” the companies said in a statement.
Executives from both companies declined to elaborate on the statement.
Analysts agreed that Dulles, Va.-based America Online is the most likely bidder. Adding CompuServe’s 3 million customers to its own 8 million would cement AOL’s position as the dominant company in the industry. Microsoft Network, the next closest competitor, has about 2 million members.
AOL has been struggling to provide adequate service to its members since usage boomed with the introduction of a flat-rate pricing plan in December. CompuServe owns a robust network with access points across the country--an attractive asset for AOL.
CompuServe is also a dominant brand in Europe and has a strong presence in Japan, two markets that AOL would like to own, said Patrick Keane, an online analyst with Jupiter Communications in New York. CompuServe’s business-focused content could also round out AOL’s consumer-oriented offerings, he said.
CompuServe’s stock has been rising since rumors surfaced early in the week that AOL was mulling a bid for its oldest rival. CompuServe’s stock rose $1.625 to cloae at $12.625 on Nasdaq on Wednesday as the rumors continued to swirl. But AOL investors were more skeptical Wednesday, sending that company’s stock down $1.125 to close at $44.625 in NYSE trading after boosting shares $3.25 the day before.
Some analysts questioned whether the bulk of CompuServe’s members would switch to America Online or instead defect to an Internet service provider such as AT&T;’s WorldNet. AOL and CompuServe are very different, with the former focusing on entertainment services and practical information and the latter setting itself apart by providing access to broad and deep information databases.
Further, although CompuServe’s network would help AOL overcome its short-term capacity crunch, in the long run AOL’s focus on becoming an online media company is at odds with making a major investment in a network, said Kate Delhagen, a senior analyst with Forrester Research in Cambridge, Mass.
That’s the same reason why Peter Krasilovsky, vice president of Arlen Communications, a new-media consulting firm in Bethesda, Md., doubts Microsoft Network would be interested in buying CompuServe.
A spokesman for MSN had no comment Wednesday. But when speculation arose six weeks ago that the Redmond, Wash.-based software behemoth was considering a bid for AOL, the company said it was only interested in growing MSN from within.
Several analysts said WorldNet, with 800,000 customers, would be a more logical suitor. Although WorldNet was launched as a pure Internet access provider, it is making deals to secure content, including a pact Wednesday to syndicate online versions of Time Inc. magazines Time, Sports Illustrated and Money.
(In March, CompuServe dropped the magazines one year after luring them away from AOL. Time Inc. has sued CompuServe for $3.5 million, the amount Time claims it is owed for the remainder of its two-year contract with CompuServe.)
WorldNet spokesman Jonathan Varman wouldn’t say whether his company was interested in buying CompuServe. Kirsten Kappos, vice president of EarthLink Network, said the fast-growing Pasadena-based ISP is not making a bid.
