CompuServe's parent company, H&R Block, today announced that it will separate the online service from its tax preparation business. The company will start by offering less than 20 percent of its CompuServe holdings to the public in April; the rest will be spun off within a year, according to H&R Block officials. H&R Block has already filed a registration statement for the initial public offering (IPO) with the Securities and Exchange Commission.
"This decision reflects our commitment to maximize shareholder value," said H&R Block president, Richard Brown, in a prepared statement. "We are convinced this move will foster better market appreciation of the value of each business and will contribute to the continued long-term success of both companies."
An IPO will also provide CompuServe with a cash infusion to fund new investment initiatives, infrastructure enhancements, and strategic alliances. Like all of its competitors, CompuServe is under growing pressure to change its business model to account for the explosion of the Internet. A public company may also be more attractive to high-powered management talent.
CompuServe is currently the number-two online service after America Online. During H&R Block's third quarter, which ended January 31, the service added 490,000 new members to its subscriber list of more than 4.3 million and 65 new corporate accounts for a total of 928. While H&R Block reported a loss of $5.5 million, or 5 cents per share, in its third quarter, CompuServe revenue increased 31.7 percent for a total of $203 million.
Financial analysts said the spin-off is expected to satisfy H&R Block investors who have complained that CompuServe's value isn't reflected in H&R Block's stock price.
But CompuServe is facing an increasingly constrained market for its services, according to market research firm Forrester Research. The firm last week released a study titled Online Unravels that predicted that the major online services will peak in 1998, after five years of meteoric growth. The study concluded that in two years, users will simply connect directly to the Internet and ignore proprietary services like CompuServe.
But an independent CompuServe will also include Spry, an Internet access and software company that H&R Block acquired last April. The SpryNet Internet-only service currently has 100,000 subscribers, and company officials claim it could provide service to 93 percent of the U.S. population.
Goldman, Sachs, & Co. will lead the CompuServe IPO. Merrill Lynch and Co. and George K. Baum & Co. have been named comanagers.