KANSAS CITY–Mo. (Reuter)–WorldCom Inc. and America Online Inc. said Monday they will split the commercial and consumer businesses of CompuServe Inc. in a $1.2 billion deal that will reshape the online services industry.
WorldCom–the nation’s fourth-largest long-distance company–agreed to buy H&R Block’s 80 percent stake in CompuServe for $1.2 billion and subsequently swap Compuserve’s 2.6 million consumer customers to AOL in exchange for AOL’s network services subsidiary–ANS Communications.
The deal will enhance AOL’s dominance as an online service provider–combining Columbus–Ohio-based CompuServe’s 2.6 million subscribers with the 8 million already using AOL.
AOL’s stock surged Monday–trading as high as $79 a share–up $8.06–early on the New York Stock Exchange.
The deal also will strengthen the dominant position of WorldCom’s UUNET subsidiary as the leading provider of communications services on the Internet.
“We think these moves position WorldCom and UUNET at the forefront of the Internet world,” said John Sidgmore–WorldCom vice chairman.
WorldCom–based in Jackson–Miss.–also will retain CompuServe’s corporate customers.
“The strategy looks like just the right thing for this company (WorldCom),” said analyst Scott Wright at Argus Research. “It focuses them on business customers on the Internet–which is where they want to be focused.”
Wright said he did not yet know what the impact of the deal would have on the company’s profits–but WorldCom said it expects the deal to add to profits.
Wright said the deal also is likely to be scrutinized by the Justice Department over possible antitrust concerns because of AOL’s dominant position among online providers.
As part of the deal–WorldCom will pay $175 million for America Online’s ANS unit and AOL will sign a five-year contract making WorldCom AOL’s largest network service provider.
The deal also helps AOL on the international front. It creates a closer link between AOL and its European partner Bertelsmann AG that will accelerate AOL’s global presence.
In an expansion of an existing joint venture–Bertlesmann will pay AOL $75 million and each company will invest another $25 million as they add CompuServe to their existing online service in Europe.
In the H&R Block-WorldCom deal–CompuServe holders would get a higher price for their shares if WorldCom’s stock rises before the deal closes–H&R Block said.
Under terms of the transaction–WorldCom will offer 0.40625 share of its stock for each CompuServe share.
CompuServe traded at $13.25–down 25 cents–while WorldCom rose $1.875 to $33.375–both on Nasdaq.
Based on the closing price of WorldCom’s stock of $31.50 on Nasdaq on Friday–CompuServe holders will get about $12.80 a share–H&R Block said. Compuserve closed up 62.5 cents on Friday at $13.50–also on Nasdaq.
H&R Block said that after the deal–it will own a 3 percent stake in WorldCom.
H&R Block also said that after the deal–it will proceed with its program to buy back up to 15 million of its shares on the open market.
The H&R Block-WorldCom deal was unanimously approved by the boards of both companies. It will be accounted for as a sale of CompuServe’s assets for tax purposes–H&R Block said.
