America Online targets smaller rival

CompuServe, the pioneer computer on-line service widely used in Europe but which has been struggling in the United States, may be about to be gobbled up by its brashly successful rival, America Online.

CompuServe, 80 per cent-owned by the leading US tax accounting firm H&R Block, saw its stock price leap in trading late on Tuesday and again yesterday on industry reports that it was the target of a putative AOL bid.

H&R Block confirmed last night that the two companies were in discussions with a third party regarding a possible business combination involving CompuServe. But it added that there were no assurances that the talks would result in any agreement or transaction.

A successful bid by AOL would inevitably attract close scrutiny by US fair-competition regulators. If allowed, such a deal would transform the on-line provider sector, leaving the field essentially to just two industry giants, AOL itself and the smaller Microsoft Network.

Shares in CompuServe none the less rose 5 per cent in early trading in New York yesterday after leaping a hefty19 per cent in the previous two trading sessions.

H&R Block has made no secret of its desire to spin off the remainder of its holding in CompuServe, which has seen its position as industry leader stolen by AOL. While foreign subscriptions to its service have recently climbed moderately, in the US membership fell to 1.7 million from 1.8 million.

By contrast, AOL, based in Virginia, has seen its customer tally soar to 8 million thanks in part to a policy of carpet-bombing America with free software discs to attract new customers. Tactics have extended to handing out software along with the peanuts on domestic air flights.

An acquisition of CompuServe could help AOL in two vital regards. While strong in the US, it remains weak abroad and would benefit greatly from absorbing the CompuServe customer base in Europe.

A deal would also help AOL overcome widely publicised difficulties in providing enough network capacity to customers.