RE: uunet + ans == ??

From todays Wall Street Journal -

                                       September 8, 1997

                  WorldCom Agrees to Acquire
                  CompuServe for $1.2 Billion

                  In Complex Deal, America Online Gets
                  Service's 3 Million Consumer Subscribers

                  By JARED SANDBERG
                  Staff Reporter of THE WALL STREET JOURNAL

                  NEW YORK -- H&R Block Inc. finally ended its troubled involvement in
                  the on-line industry by agreeing to sell its CompuServe Corp. unit to
                  WorldCom Inc. for about $1.2 billion in stock.

                  The deal was reached after WorldCom, a communications company,
                  topped leveraged-buyout firm Welsh, Carson, Anderson & Stowe with a
                  bid valued at nearly $13 a share. But the real winner in the complex accord
                  reached Sunday night could be America Online Inc., which will end up with
                  CompuServe's consumer subscribers.

                  In a transaction that restructures the on-line industry and makes WorldCom
                  an on-line giant, WorldCom will acquire CompuServe's 1,200 corporate
                  customers but transfer CompuServe's three million consumer customers to
                  AOL, as well as pay the rival on-line service roughly $175 million. In
                  exchange, AOL will turn over to WorldCom its own high-speed Internet
                  access division, ANS Communications Inc., an Internet pioneer.

                  The deal is expected to be completed in six months.

                  Bertelsmann's Part of Deal

                  The deal also calls for Bertelsmann AG, a German media company, to pay
                  AOL $75 million to maintain Bertelsmann's 50% ownership of a joint
                  European on-line service, which will be expanded by the addition of
                  CompuServe's European on-line service. And as part of the agreement
                  between AOL and WorldCom, the two companies have entered into a
                  five-year plan for AOL to lease much of its infrastructure needs from the
                  telecommunications concern at discount rates while AOL's chairman, Steve
                  Case, obtains a seat on WorldCom's board, executives said.

                  In one fell swoop, the moves create the two biggest players in their
                  respective corners of cyberspace. In the business sector, WorldCom
                  becomes a networking giant serving the two largest commercial on-line
                  services and thousands of corporate customers. On the consumer side, the
                  transactions expand AOL's membership by more than 30% to 12 million,
                  making it roughly six times the size of its next largest competitor, Microsoft
                  Corp.'s Microsoft Network.

                  Adding CompuServe's 850,000 European subscribers also makes the
                  AOL-Bertelsmann venture the largest pan-European on-line service. The
                  addition of CompuServe's online customers to AOL Europe's nearly
                  700,000 members would result in a combined total of more than 1.5 million.

                  Beyond the U.S. and European operations, America Online would add
                  more than 300,000 CompuServe online members in the rest of the world
                  including Japan, where AOL launched its own service in April, and Canada,
                  where AOL has more than 100,000 members. CompuServe's on-line
                  division also has services in Asia, Latin America and Australia.

                  That leadership role gives AOL tremendous leverage to seek a premium
                  from on-line advertisers and merchants. At the same time, the transactions
                  allow AOL, which has barely been profitable, to obtain more than $200
                  million in needed cash as well as a close partnership with WorldCom, which
                  will likely go a long way toward solving much of AOL's network-capacity

                  But the realignment could present some problems for AOL. The company
                  could run into the sort of antitrust concerns that arise when the leader in an
                  industry purchases its next-largest competitor. Moreover, AOL's young,
                  aggressive culture could clash with CompuServe's more traditional, staid
                  environment. Employees of Columbus, Ohio, CompuServe, which lost its
                  dominance of the industry to the Internet and AOL, could defect.
                  CompuServe's subscribers, who tend to be business professionals, could
                  also balk at the mass-market mindset of AOL and flee the service.

                  Fewer Choices for Consumers

                  For consumers, the combination means fewer choices in the on-line realm.
                  AOL will likely control more than half the U.S. home market for on-line
                  services. That kind of power could eventually allow AOL to raise monthly
                  fees from their current level of $19.95 a month for unlimited service, which
                  has been a good value for consumers but has left most on-line companies
                  with persistent losses. However, some analysts think an increase is unlikely.

                  The striking set of deals comes on the heels of a competing bid for
                  CompuServe made by Welsh Carson. Before each side presented its bid to
                  Block last Thursday, Welsh's bid was favored by CompuServe's executives
                  because, as one executive put it, the WorldCom deal "looked too
                  complicated to happen."

                  But under the Welsh offer, H&R Block, Kansas City, Mo., would have had
                  to retain a minority stake in the on-line service, executives said. The
                  WorldCom bid, on the other hand, "was a much cleaner transaction," said
                  one executive, adding that Block exits the business entirely under the
                  proposed terms offered by WorldCom's chief operations officer, John

                  "Sidgmore was also a little more determined," said another executive. Mr.
                  Sidgmore presented WorldCom's offer to the Block board himself and
                  sweetened the bid on Thursday from roughly $12 a share. The company
                  said, based on WorldCom's closing price Sept. 5, the transaction is valued
                  at about $12.80 a CompuServe share.

                  The price of the deal is below CompuServe's closing share price Friday of
                  $13.50, up 62.5 cents, in Nasdaq Stock Market trading. About 20% of
                  CompuServe shares are publicly traded. Block's shares closed at $40.1875
                  and AOL's closed at $69.9375.

                  For its part, WorldCom, which had $5.6 billion in revenue last year, has
                  emerged as the fourth-largest long-distance competitor, but with some of
                  the best footholds in local phone service and cyberspace as well. The
                  company, which has completed almost 50 acquisitions in 12 years, provides
                  local phone service in 41 cities through its $12.5 billion acquisition last year
                  of MFS Communications. MFS had just acquired UUnet Technologies
                  Inc., which has local connections to the Internet in 1,000 locations around
                  the globe.

                  The acquisition of CompuServe's network services unit and AOL's ANS
                  division helps further WorldCom's strategy of assembling a major
                  communications network, a plan for which the Jackson, Miss., company set
                  aside $2.5 billion this year. Its goal: to offer a complete suite of voice and
                  data services. The move arguably makes WorldCom the largest provider of
                  Internet services, making it a more formidable competitor to MCI
                  Communications Corp. and GTE Corp.

                  For AOL, the CompuServe subscribers bring the Dulles, Va., company a
                  large step closer toward realizing Chairman Case's dream of controlling a
                  critical mass of on-line users. For years, Mr. Case has been spending
                  heavily to acquire subscribers, believing that the best way to make money is
                  to have an audience big enough to command hefty advertising, marketing
                  and transaction fees.

                  The subscriber-acquisition spending, however, has left the service only
                  flirting with profitability. In its last quarter, AOL posted a loss of $11.8
                  million, including a one-time charge, on revenue of $475.7 million.
                  Moreover, the on-line industry is far from a mass medium. Fewer than 20%
                  of American households are on-line and the industry suffers from rampant
                  subscriber defections.

                  'A Huge Operational Challenge'

                  In addition, the task of blending the two services is "a huge operational
                  challenge," said Emily Green, senior analyst at Forrester Research Inc. Still,
                  she said the shedding of the networking business allows AOL to focus itself
                  as a media company along the lines of HBO, which creates "content."

                  AOL also said the planned long-term strategic relationship with WorldCom
                  will provide AOL with "significantly expanded network capacity for its
                  service at favorable prices." The agreement with WorldCom will add as
                  many as 100,000 modems from WorldCom's UUnet unit in the short-term.

                  The sale of ANS, which AOL purchased for a paltry $35 million a few
                  years ago, could also contribute to sharpening AOL's focus on content by
                  eliminating the need to compete against telecommunications companies in
                  the access industry.

                  People familiar with AOL's plan say the company won't dismantle the
                  CompuServe on-line service and will continue its marketing focus on
                  business professionals.

                  The plans follow months of interest by AOL in CompuServe. Last spring,
                  AOL, Block and CompuServe were nearing a deal whereby AOL would
                  have acquired the service in a stock swap. But Congress closed a tax
                  loophole called the Morris Trust that would have allowed the sale to go
                  through tax-free, scuttling the deal. Moreover, that deal could have diluted
                  AOL's stock value, said one executive familiar with the discussions. "This
                  way, AOL has a very good network service agreement with WorldCom.
                  They have the CompuServe on-line service and they get cash," the
                  executive said.

                  H&R Block said under the terms of the deal, CompuServe shareholders,
                  including H&R Block, will get a fixed exchange ratio of 0.40625 of a
                  WorldCom share for each CompuServe share held, subject to adjustment.

                  If WorldCom stock falls below a certain level, shareholders of
                  CompuServe will have a "floor" at $12 a share. That means they would
                  receive more shares of WorldCom stock to compensate for the price
                  decline, but won't have to give up stock if WorldCom's stock rises.

                  Upon completion of the transaction, H&R Block will hold about 3% of
                  WorldCom and said it "will evaluate various alternatives to convert its
                  holdings into cash in a timely manner."

                  Due in part to the change in the Morris Trust law, Block will likely pay taxes
                  on the sale of CompuServe. It is unlikely that Block will hold onto the
                  WorldCom stock for long. Salomon Brothers and Goldman, Sachs & Co.,
                  which represented Block and CompuServe, respectively, wouldn't

                  H&R Block said it expects to move ahead with plans to repurchase up to
                  15 million of its shares in the open market. But, the company said the
                  buyback will depend on the price of the stock, availability of excess cash,
                  the ability to maintain financial flexibility and other investment opportunities.

                  --Steven Lipin contributed to this article.

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George J. Broadfoot III
VP of Operations