H&R Block postpones CompuServe spinoff Strategy is to stem Internet defections

August 29, 1996|By BLOOMBERG BUSINESS NEWS

KANSAS CITY, Mo. -- H&R Block Inc. said yesterday that it has postponed the spinoff of its remaining stake in CompuServe Corp., gambling that the money-losing unit will be able to stem customer defections to cheaper Internet services.

The company said it still intends to separate CompuServe from its tax-preparation business. The first step is boosting the unit's stock: Since H&R Block sold a 20 percent stake in an initial public offering in April, CompuServe's shares have plunged 56 percent.

"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., money manager that owns H&R Block shares.

H&R Block investors showed their disapproval, the stock falling $2 to $25.875 in trading of 2.29 million shares, more than double the three-month daily average. CompuServe shares rose $1.0625 $13.375.

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 said it plans to do so.

H&R Block said its board decided not to present the CompuServe spinoff for a shareholder vote at its Sept. 11 annual meeting. The Columbus, Ohio-based online 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," said Frank Salizzoni, H&R Block's interim president and chief executive officer. H&R Block spokesman Brian Schell said the company wants to boost CompuServe's stock price to let shareholders get the best value for their investment.

H&R Block unveiled plans in February for a public offering, it said it planned to spin off or split off the rest of the company within a year of the IPO.

The spinoff, announced in July, was tentatively scheduled to take place by Nov. 1. But CompuServe posted a first-quarter loss of $17.1 million, or 19 cents a share, in the first quarter, and projected a loss of 10 cents to 15 cents a share in the second quarter.

H&R Block bought CompuServe, the oldest online service, in 1980 to help develop electronic filings for tax returns. H&R Block's decision to sell the company in a public offering was prompted by investor interest earlier this year in Internet and online companies.

Pub Date: 8/29/96

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