Bid to Acquire Online Is Weighed

Bid to Acquire Online Is Weighed

By Lawrence M. Fisher
The New York Times

SAN FRANCISCO, May 3, 1993 -- Paul Allen, co-founder of the Microsoft Corporation and chairman of the Asymetrix Corporation, said today that he might seek to acquire America Online Inc., a leading supplier of information services to users of personal computers.

Mr. Allen already owns 24.9 percent of America Online, which is based in Vienna, Va., and provides services like access to newspaper articles, messaging and other services over a network that PC users can access with a telephone modem.

Shares in America Online rose $4.25 today, closing at $30.50 in Nasdaq trading.

Takeover Defense

A spokeswoman for America Online said the company had no comment. Mr. Allen disclosed his intentions in a filing with the Securities and Exchange Commission and was not available for further comment.

In the filing, Mr. Allen said America Online's adoption of a shareholder rights plan, a form of takeover defense, had caused him to reconsider his position as a passive shareholder. Mr. Allen has been a significant shareholder of America Online since its initial public offering in March 1992. He said he had hired an investment banking firm to advise him.

Analysts said the acquisition of America Online would fit Mr. Allen's broad business activities in so-called new media, like interactive television. With several thousand subscribers to its network, America Online could provide a ready-made market for the products of Mr. Allen's other companies. In addition, the symbols and commands of America Online are particularly easy to master, which would help attract less technically inclined consumers to a broader range of services.

Mr. Allen has owned the Portland Trail Blazers professional basketball team since 1988. Asymetrix, based in Bellevue, Wash., makes tools that are used to create programs.

"He wants to be the Bill Gates of the 1990's," said Denise Caruso, editor of Digital Media, an industry newsletter, referring to Mr. Allen's college friend with whom he founded Microsoft in the late 1970's.

"Integral's whole charter is the next generation of interactive entertainment," she said. Integral is a new media research institute financed by Mr. Allen. "He wants to have a very strong proprietary position."

Mark Stahlman, an analyst with New Media Associates in New York, concurred, noting that in addition to Integral, Mr. Allen has financed a number of media start-up companies.

"He needs a network to distribute the broad range of products that his cluster of companies is likely to develop," he said. "You can't do that unless you own the company."

Mr. Allen said he may seek representation on America Online's board, and may also acquire additional shares, either on the open market or through privately negotiated arrangements. These purchases would be subject to the company's "poison pill" takeover defense, which seeks to block unwanted acquisitions when a shareholder accumulates a 25 percent stake in the company, and to normal regulatory considerations. He said the company has so far denied his request for a copy of the shareholder rights plan.

Providing a Platform

Joshua Harris, an analyst with Jupiter Communications, a New York research and consulting firm, said Mr. Allen may be more interested in America Online's technology than its subscriber base, which is about 250,000.

"I suspect that he is seeing that the America Online platform could become the DOS for home control" of new media, he said, referring to the Microsoft operating system used on most personal computers. "The PC and modem is going to evolve and change, and the game is to provide the platform."

On Saturday, America Online cut its subscription price in half, to $9.95 a month, a move aimed at raising its share of the online information business, where it competes with Prodigy, Compuserve and smaller companies. Founded in 1985, the company has established strategic alliances with more than 30 companies including I.B.M., Apple Computer, Microsoft, and the Tribune Company.

GRAPHIC: Photo: Paul Allen (Jim Wilson/The New York Times)

Graph showing the daily closing prices for American Online from April 2-30. (Source: Datastream)