COMPUSERVE TALKING SALE : SPECULATION THAT AOL MAY BE BIDDER FUELS STOCK GAIN.

Byline: David E. Kalish Associated Press 

CompuServe's parent company confirmed Wednesday that talks were under way to sell the second-largest on-line service, sending CompuServe stock up nearly 15 percent amid reports that America Online was the bidder.

While a deal faces formidable hurdles, a combination of CompuServe and the nation's largest on-line service could create an industry behemoth - boosting AOL's membership of 8 million by more than a third, erasing a big rival and aiding its ambitions to sell dramatically more on-line advertising.

A combined company also might be in a better position to compete with Microsoft Network, the nation's third-largest on-line service backed by the deep pockets of software giant Microsoft Corp.

H&R Block, which owns 80 percent of Columbus, Ohio-based CompuServe Inc., would not say who it was talking with about the takeover. A spokeswoman for Dulles, Va.-based AOL said the company didn't comment on rumors or speculation.

But speculation has firmly centered on AOL, whose struggle to fix its network bottlenecks could be aided by CompuServe's high-tech equipment.

AOL needs to rapidly upgrade its network of modems, computers and networking equipment so it can begin growing again. Under an agreement with 36 states in February, AOL suspended a multimillion-dollar membership drive until it can add more capacity to clear up network bottlenecks that resulted in busy signals for millions of people trying to log on.

``The worry is that if (the number of new members) is higher than what they forecast, they may run into some legal issues,'' said Kenneth Leon, an analyst at Chicago Corp.

CompuServe has the capacity to handle additional members with its existing modems, computers and other network equipment, said company spokesman Steve Conway. Contrasting with AOL's recent surge in members, CompuServe is beset by defections to rival services and the cancellation of its family oriented WOW! service just seven months after it was started.

In addition, CompuServe is growing strongly with large corporate customers, a lucrative market that AOL has been examining. CompuServe also is strong in Europe and Japan, where America Online has been trying to expand.

CompuServe investors applauded the merger talks. Even as the broader stock market tumbled, CompuServe shares soared 14.8 percent, up $1.62-1/2 to $12.62-1/2, on the Nasdaq Stock Market. CompuServe had gained nearly 19 percent in the previous two sessions on rumors about an AOL bid.

But analysts were mixed about a deal's value to America Online, which fell 2.5 percent to $44.62-1/2 on the New York Stock Exchange. AOL has been short on cash, with only about $100 million on hand at the end of last year. At Wednesday's stock price, CompuServe is worth about $1.2 billion overall, with H&R Block's stake worth about $960 million.

``It's less expensive for AOL to build out its own network,'' said Jamie Kiggen, an industry analyst with Cowen & Co. in Boston.

Kiggen said CompuServe's equipment would only give AOL an ``incremental'' increase in capacity for on-line usage. In addition, he said there's no guarantee the CompuServe members would become AOL members.

For CompuServe, the possibility of an acquirer is the first good news in months. Two weeks ago, Time magazine sued it for at least $3.5 million, accusing CompuServe of breaching a two-year contract to carry Time's news service. And last week, a shareholder lawsuit claimed CompuServe misrepresented itself and the market for its now-defunct WOW! on-line service when it went public last year.

The deal also reflects a shift in public strategy for H&R Block, which as recently as February insisted it wanted to revive a postponed spinoff of the on-line service into a separate company as soon as it kicked CompuServe into shape.