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H & R Block Seeks to Boost Value of CompuServe

August 29, 1996|From Bloomberg Business News

H&R Block Inc. on Wednesday postponed the spinoff of its remaining stake in CompuServe Corp., hoping to raise the stock price before giving the money-losing unit to shareholders.

To separate CompuServe from its tax-preparation business, H&R Block intends to improve CompuServe's performance by cutting costs and stemming customer defections to cheaper Internet services. H&R Block hopes to return the online service to profitability and reverse a 56% drop in CompuServe's stock since H&R Block sold a 20% stake in an initial public offering in April.

"We want them to get rid of CompuServe. They are making a last-ditch effort to ride it out until the online market becomes favorable, if that's possible," said Paul Duensing of DePrince, Race & Zollo Inc., an Orlando, Fla.-based money manager that owns H&R Block shares.

H&R Block investors showed their disapproval: Shares fell $2 to close at $25.875 on the New York Stock Exchange, with 2.3 million shares changing hands, more than four times the three-month daily average. Meanwhile, CompuServe shares rose $1.0625 to close at $13.375 on Nasdaq.

Online services such as CompuServe and America Online Inc. are under fire from AT&T Corp. and MCI Communications Corp. and others that offer the same services more cheaply by connecting customers to the Internet. To fight back, Prodigy Services Corp. and Microsoft Corp. have moved to the global computer network, and CompuServe says it plans to do so.

Some analysts--convinced the online services market won't recover--said H&R Block should sell off parts of CompuServe. The profitable units are the network services that connect consumers and businesses to the computer networks and the Internet.

"The pieces of CompuServe are worth more than the whole at this point." said Peter Krasilovsky, an analyst at Arlen Communications Inc., a Bethesda, Md.-based consultant. "It would be a good idea to split it up if the company continues sinking."

Kansas City, Mo.-based H&R Block said its board decided not to present the CompuServe spinoff for a shareholder vote at its annual meeting Sept. 11. The company said it didn't ask shareholders about the plan before announcing it.

The Columbus, Ohio-based on-line service said the decision was based on a loss in the first quarter, an expected loss in the second quarter, uncertainties in the online industry and the September launch of CompuServe's redesigned services.

"The board continues to believe that a separation of CompuServe is in the best interests of H&R Block shareholders," Frank Salizzoni, H&R Block's interim president and chief executive, said in a statement.

H&R Block spokesman Brian Schell said the company wants to boost CompuServe's stock price to let H&R Block shareholders get the best value for their investment.

H&R Block ought to cut CompuServe loose to focus on its tax businesses, said Mark Seferovich, a money manager at Waddell & Reed Asset Management Co. in Overland Park, Kan.

"The nature of their businesses are too different," said Seferovich, who owns about 609,000 shares each of H&R Block and CompuServe. "The tax side is a big cash generator. CompuServe is a big cash user."

CompuServe has lagged its competitors in marketing its services and in releasing updated software, which had been scheduled for last spring. The company instead confused customers by promoting a second service, called WOW!, and laying out nebulous long-term plans to move all of its information to the Internet.

CompuServe had 3.3 million subscribers at the end of July, down from 3.4 million in the previous quarter.

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