Investors pounced on America Online Inc.'s stock Monday following the announcement that AOL and WorldCom Inc. would purchase CompuServe Inc. for $1.2 billion in stock.
AOL's stock soared by more than $7 per share in early Monday trading on brisk volume rising to an all-time high of more than $77 per share after closing Friday at $69.93.
"What can you say about a stock that's trading at its all-time high?" said Ernest Widmann, an analyst at Widmann, Siff & Co. "This is still a company that has never made money. Where were all the people that now love AOL when it was $22 a share a few months ago?"
Apparently investors aren't too concerned about AOL's recent financial woes. This deal means another 2.6 million CompuServe subscribers will be added to AOL's existing stable of 9 million users.
CompuServe, which will remain a separate service but will be fully operated by AOL, will be sold to WorldCom, based in Jackson, Miss. WorldCom, in turn, will then give the consumer online business portion of CompuServe and $175 million to AOL in exchange for AOL's ANS Communications Inc. access business.
"First of all, AOL gets some spending money to hopefully better serve their existing customers and the new ones they'll be taking on," said one analyst who spoke on the condition of anonymity. "More important, they'll have about 3 million new pairs of eyes to sell to advertisers and really make that part of their business model take off."
Antitrust regulators still must approve the transaction. If approved, AOL's biggest competitor would be Microsoft Corp.'s Microsoft Network.
Last April, AOL nearly reached an agreement to buy CompuServe for $1.3 billion in stock. But changes in federal tax rules forced the companies to put the deal on hold.