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Block won't budge on CompuServe

H&R Block will not sell off of its CompuServe holdings at its September 11 annual meeting in response to the online service's low stock value, its first-quarter losses, and fears of an unstable market.

H&R Block announced today that it will not sell off of its CompuServe holdings at its September 11 annual meeting in response to the online service's low stock price, its first-quarter losses, and fears of an unstable market.

H&R Block had sold 20 percent of its CompuServe shares in April and was planning the same for its remaining 80 percent next month. But the board decided to delay the move because of CompuServe's relatively low stock value, losses in its first quarter, and predictions of a second-quarter downturn of 10 cents to 15 cents per share, H&R Block spokeswoman Linda McDougall said.

In afternoon trading, CompuServe's stock (CSRV) was up, while Block's price (HRB) fell.

H&R Block, which bought CompuServe in 1980 when it was primarily a computer time-share business, decided to spin off CompuServe, making it financially independent. H&R Block is concerned about the "uncertainty of the Internet and the online industry" as well as CompuServe's scheduled upgrade this spring of its services, McDougall said.

However, she added, plans for the sell-off are far from dead. "We still very much think spinning off is very much in the interest of CompuServe and H&R Block as well as shareholders," she said.

In fact, H&R Block had promised shareholders in its prospectus that it would take action to sell out within 12 months of its initial public offering, by April 24, 1997, according to Herb Kahn, executive vice president of operations at CompuServe.

Kahn put a positive spin on today's development, saying it gives CompuServe more breathing room in its plans to reinvent itself in the face of customer loss, layoffs, management turnover and an increasingly competitive market place.

"I feel as though I understand the reason for it," Kahn said. "I believe in the near term it allows me and others to focus on things we want to focus on: the element of getting the business where we want to be."

But the delay is definitely not a good sign, said David Simons, managing director of Digital Video Investments, a money management research firm. "It just increases the uncertainty about the future," he said. "It also roils an already difficult management situation in CompuServe."

When H&R Block made its initial public offering of CompuServe stock, Simons said, "there was some remarking that the price seemed a little low."

CompuServe explained that it wanted to keep the price low so the sell-off of its remaining 80 percent would go well, he said. "Instead, what happened it went the other direction, finally reaching a point around $20 where the value of CompuServe outside of H&R Block was worth no more than the value inside H&R Block," Simons said.

Both H&R Block and CompuServe had wanted the separation of the companies. As far as CompuServe was concerned, its independence would mean that it could funnel more money into research and development and marketing without having to worry about being profitable. "For H&R Block, keeping CompuServe, which had developed into an online service that had little to do with H&R Block's business, just didn't make sense anymore," McDougall explained.

"The intent behind selling off CompuServe mainly was to enable CompuServe to compete in the same manner as America Online et al, without having the constraints of having to contribute to H&R Block's profits," Simons said.

Kahn said CompuServe's plans will not change as a result of the delayed sell-off and had high hopes for the future, especially with the roll-out of its new interface.

"We will continue to operate as we have been operating," he said. "Our goals are exactly the same."

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