Allen sells rest of America Online stake, ending struggle with computer service

Allen sells rest of America Online stake, ending struggle with computer service

Jared Sandberg, Staff Reporter
The Wall Street Journal

September 20, 1994

New York -- Billionaire Paul Allen, co-founder of Microsoft Corp., dumped his remaining stake in America Online Inc., ending his tortured relations with the computer on-line service that he had tried to control.

Mr. Allen, who sought but failed to get a board seat on the highflying on-line service, sold his remaining 548,000 shares for more than $39 million, a profit of about $30 million, his spokeswoman said. She declined to comment on who bought the stock. But people familiar with America Online's business said a few large institutional investors were the probable buyers of his stake, which represented more than 7% of the company's close to 8 million shares outstanding.

Last Tuesday, this newspaper reported that John Malone, the founder of the giant cable concern, Tele-Communications Inc., was talking to Mr. Allen about buying his remaining stake in America Online, which is based in Vienna, Va. The spokeswoman for Mr. Allen, however, said that Mr. Malone didn't purchase the shares.

News of Mr. Allen's sale drove down America Online's stock price $1.375 to $72.375 in Nasdaq Stock Market trading yesterday.

On July 29, Mr. Allen sold 733,000 shares at $59 apiece, according to CDA/Investnet. As word of his trade spread through Wall Street that day, America Online's stock fell 8.3%, to $55.625.

The latest sale followed a smaller one last week by Mr. Allen, in which he unloaded about 150,000 shares, or about 2% of the company's stock. All told, Mr. Allen made a profit of about $75 million in the past few months on several sales of his America Online holdings, his spokeswoman said. Mr. Allen once owned 1.43 million shares, representing just under 25% of the company.

William H. Gates III, co-founder of Microsoft and longtime friend of Mr. Allen, reportedly stalled Mr. Malone's play for America Online, talking to TCI about investing in Microsoft's coming on-line service, code-named Marvel, according to the Washington Post. Last week, Mr. Gates confirmed his talks with Mr. Malone, but denied that he helped stall the talks with America Online.

The sale marks the end of a highly public tussle between the flourishing on-line service and Mr. Allen, which started almost from the moment he began amassing shares in 1992. Mr. Allen, who owns stakes in a number of high-technology companies, wanted America Online to work with his holdings in delivering electronic information and services. His other holdings include TicketMaster Corp., a ticket-selling service.

But America Online was wary of Mr. Allen, whose close ties to Microsoft could upset the on-line service's business relationships with the software titan's rivals, the company said. To innoculate itself against an unwanted takeover by Mr. Allen, America Online adopted a "poison-pill" defense that would essentially allow it to flood the market with new shares, making it very difficult for Mr. Allen to take it over. Frustrated, Mr. Allen began unloading his stake in late July.

"A key criterion of Mr. Allen's investment strategy is to work with companies that can contribute to or benefit from the technology and strategy of other Paul Allen companies," the spokeswoman said, explaining Mr. Allen's exit. "The desired synergy was not realized with America Online."

Indeed, "this is positive news," an America Online spokeswoman said. "We believe it closes the chapter on Paul Allen and America Online."