07/21/97 CRUISIN' FOR COMPUSERVE

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CRUISIN' FOR COMPUSERVE
Will tech LBO firm Welsh Carson bid for the online service?
It has been a big week for Welsh, Carson, Anderson & Stowe. First came the news that the New York leveraged buyout firm is interested in acquiring CompuServe, a subsidiary of Kansas City-based H&R Block Inc. Then on July 9, Welsh Carson signed an agreement to buy the outstanding shares of Control Data Systems Inc., a software and services company, for $20.25 a share, or $282 million.
That's a lot of high-profile activity for a company that's almost unknown outside its business niches. But in information services and health care, where it has quietly been snapping up businesses for years, Welsh Carson is a powerhouse. Its 35 companies have combined revenues of more than $9 billion. It controls $4.7 billion in assets, and its swelling financial-information business makes it ''a Bloomberg competitor,'' says partner Russell L. Carson. ''Our goal is to be a broad-based financial-information provider.''
''THE PIONEER.'' That's where Compu-Serve may come in. H&R Block has wanted to divest itself of CompuServe since April, 1996, when it sold off 20% of CompuServe's stock in a public offering. Microsoft Corp. and America Online Inc. have both looked into a possible deal for CompuServe's online service. CompuServe will only say that it is talking to buyers.
Carson won't comment on a possible CompuServe bid. But industry execs say CompuServe would fit well with its major online asset, Bridge Information Systems. Bridge could use CompuServe's network to deliver information more cheaply to its clients. CompuServe's network is used to run the online service, but also is used by businesses for private communications. For example, Visa uses CompuServe to authorize transactions.
Welsh Carson started out in the venture-capital business in 1979, with a $30 million fund. Two co-founders, Carson and Patrick J. Welsh, helped build Citicorp Venture Capital Ltd. Another co-founder, Bruce K. Anderson, spent nine years at Automatic Data Processing Inc. In 1987, the firm moved from venture capital into buyouts. ''They're the pioneer of the technology leveraged buyout,'' says Charles Federman, chairman of Broadview Associates.
The firm's M.O. has been to avoid cutting-edge technology and stick to mundane but profitable areas, such as credit-card processing. ''They are not doing technological innovation, but technology applications,'' says Steven Gallante, the editor of Private Equity Analyst, a leveraged buyout newsletter.
In 1995, Welsh Carson began assembling a financial information conglomerate by paying $178 million for Bridge. It had a rich database of stock prices but was no match for bigger, richer rivals. That same year, Welsh Carson bought MarketVision, a system used by traders to graph financial information on their computer screens, and EJV, which has a unique database of bond prices from eight top Wall Street firms. In 1996, Welsh topped it off by acquiring Knight-Ridder Financial, a financial news organization. Total investment: $500 million, sources at Bridge estimate.
Bridge now competes with Reuters, Dow Jones, and Bloomberg. With 46,400 terminals at the end of 1996, Bridge was behind Reuters' 272,900, Dow Jones Markets' 102,700, and Bloomberg's 69,000, according to Waters Information Services.
But Bridge has the advantage of being an open system--based on PC technology--in contrast to Bloomberg's proprietary terminals. That makes the system more flexible and would ease integration with CompuServe's network. ''As a distribution channel, there would be significant opportunities for both of us,'' says Dick MacWilliams, executive vice-president at Bridge. He declines, however, to comment on any possible deal.
In the meantime, the bidding for CompuServe proceeds. Sources say H&R Block may be trying to sell off CompuServe in two chunks: the money-making network and the money-losing online service. But with CompuServe's stock at 12, down from 30 at its debut in April, 1996, the one-time pioneer of online services is clearly on the ropes. Just the way Bridge was when Welsh Carson bought it in 1995.
By Leah Nathans Spiro, with Amy Cortese, in New York and bureau reports

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