Compuserve Prepares For Buyout By Worldcom
Stockholders of CompuServe Corp. will huddle for the last time on Jan. 30 for a special shareholders meeting, ostensibly to consider WorldCom Inc.’s offer to buy the company for $1.2 billion.
The meeting, which will take place at CompuServe’s headquarters in Columbus, Ohio, is actually little more than a formality.
CompuServe’s largest shareholder, H&R Block Inc., has agreed to vote its 80 percent stake in favor of the merger with the burgeoning telecommunications conglomerate. And most of the required regulators have given their blessing to the deal.
The consummation of the deal - expected the same day of the meeting - will mark the end of a short, painful ride for CompuServe shareholders, and a liberation of sorts for H&R Block, which has been trying to shed the business for the last year.
In a complicated three-way exchange, CompuServe shareholders will get .40625 shares of WorldCom stock for every share of CompuServe. WorldCom will then turn over CompuServe’s online customers to rival America Online Inc. in exchange for America Online’s communications network.
At Wednesday’s closing prices, the stock-for-stock trade is valued about $12 a share for CompuServe shareholders, a fraction of the $35.50 that CompuServe shot up to when the stock was originally offered to the public in April 1996.
As CompuServe’s largest shareholder, H&R Block will get about 30 million WorldCom shares, which it is expected to sell as soon as prudently possible, said Alexander Paris of Barrington Research in Chicago.
H&R Block will use the approximately $700 million in after-tax proceeds to buy back its own shares and fund growth in its financial service and tax business, which is expected to be strong in the wake of the new tax reforms.
Individual shareholders, however, will face another choice: whether to take their lumps and sell their new WorldCom shares, or risk another ride with a brash new company whose prospects are anything but certain.
“WorldCom is a pretty dynamic company,” said Paris, “but I think most shareholders will choose to monetize their shares. They didn’t buy a telecommunications company.”
WorldCom has snowballed into the public consciousness in the last year with a series of audacious merger offers, the last of which was to buy MCI Communications Corp.
The company has experienced extraordinary growth and is well-positioned in several of the sweet spots of the telecommunications industry, including the markets for Internet, data, international and business traffic.
Some of the stocks that moved substantially or traded heavily Friday on the New York Stock Exchange and Nasdaq Stock Market:
NYSE
AT&T, down 2-1/2 at 58-13/16.
WorldCom (Nasdaq), down 5/16 at 29-15/16.
MCI Communications (Nasdaq), down 1/8 at 42-11/16.
SBC Communications, up 1-11/16 at 74-15/16.
In a surprise decision late Wednesday, a federal judge in Texas declared that key parts of the 1996 Telecommunications Act unconstitutionally singled out and barred regional Bell companies from providing long distance telephone services. Federal officials and lawyers for long-distance companies were planning an appeal in the suit brought by SBC.
NASDAQ
Sybase, down 3-3/8 at 9-15/16.
The maker of client-server software warned that its fourth-quarter results won’t meet Wall Street expectations. Sybase, based in Emeryville, Calif., said it may even report a loss for the period.
Multimedia Games, down 3-1/2 at 11-1/16.
Federal officials searched Multimedia’s headquarters in Tulsa, Okla., to gather evidence related to the company’s MegaMania bingo game. The investigation concerns provisions of the Indian Gaming Act of 1988.