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CompuServe stock surges 38%

Shares in the online service continue to soar on expectations it will soon find a buyer.

CompuServe (CSRV) shares today continued to soar on expectations the online service will soon find a buyer.

In the past week, the online service provider's stock has jumped 38 percent to close today at 13-5/8, up 7/8 from yesterday. CompuServe had closed at 9-55/64 on Monday.

The stock had gotten its greatest jolt on Wednesday, after majority shareholder H&R Block confirmed that the online service is in merger discussions. The stock rose nearly 15 percent.

"H&R Block [is] currently engaged in external discussions regarding a possible business combination involving CompuServe. There are no assurances that such discussions will result in any agreement or transaction," stated H&R in a release. The tax advisory firm holds an 80.1 percent stake in CompuServe.

Linda McDougall, an H&R spokeswoman, declined to clarify whether discussions would involve the sale of just the H&R stake to another party or the sale of the entire company.

CompuServe's shares started rising Tuesday, following a report from an investment research firm that speculated America Online (AOL) might acquire the competing online service.

AOL, which has been fighting a string of losses and lawsuits, could use CompuServe's network to enhance its own, which has been under pressure since the service provider switched its fee structure to unlimited access for $19.95.

AOL shares, meanwhile, have risen 13.8 percent since Monday's close. The online giant closed today at 48-3/8 a share, up 2-7/8 from yesterday. AOL had closed at 42-1/2 on Monday.

Wall Street Strategies, a New York-based investment firm, released a report Monday night to its clients about a possible buyout of CompuServe by AOL. The report said CompuServe makes a good acquisition target because of its depressed stock price, especially compared to the value of its subscriber list.

AOL officials declined to comment on the talk of an acquisition.

Wall Street Strategies says that AOL could benefit from CompuServe's established position in Europe as AOL looks to expand there. "AOL is looking aggressively to engage in Europe, and you either do it for yourself or through an acquisition. Our feeling is acquisition," said J.R. Smith, an analyst at Wall Street Strategies. "From a survival standpoint, it is very attractive. The Internet is vicious war, and if you can't beat 'em, join 'em."

Smith added that he thinks the deal between the two online service providers is imminent and could be final within a month, or sooner. The deal could be worth about $14 a share, he said.

Sources have told CNET's NEWS.COM that CompuServe is known to have approached numerous potential buyers over the past few months, including America Online.

CompuServe's stock has taken a beating since last April when it traded as high as 35-1/2. A stream of red ink, declining revenues, and a changing business model have left its stock hovering around its 52-week low of 8-5/8 since November.

AOL is not without its own problems. The company has faced numerous lawsuits, service outages, and customer backlash, but Smith thinks AOL's efforts to fix the problems will eventually propel its stock upwards again.

But its uncertain how that will play out on AOL's balance sheet. The company posted two-consecutive losses in the most recent quarters. The company reported a $154.8 million loss in the second quarter on revenues of $409.4 million.

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