East Coast firm takes over two of L.A.'s hottest software outfits.

An East Coast consumer discount company has snatched up a second hot L.A.-area software developer, and moved its own management into the first.

CUC International Inc. completed its acquisition of Glendale-based Knowledge Adventure Inc. - an educational software firm best known for its "Jump-Start" series for toddlers - earlier this month.

Knowledge Adventure will now operate under the umbrella of the recently formed CUC Software unit, which includes Torrance-based Davidson & Associates, Irvine-based Blizzard Entertainment and Bellvue, Wash.-based Sierra On-Line Inc.

At the other L.A.-area software company acquired by CUC, Davidson & Associates, the company's co-founders Jan and Bob Davidson unexpectedly resigned from their management roles on Jan. 21, although they will continue to serve on CUC's board of directors.

CUC quickly installed Christopher McLeod, an executive vice president at CUC, as the new CEO of Davidson & Associates.

The Davidsons, whose explosive software success has skyrocketed them into the ranks of L.A.'s wealthiest individuals, have declined all media interviews. CUC spokeswoman Laura Hamilton said they simply "wanted to pursue other interests."

CUC's foray into the software business has yet to pay off for the Stamford, Conn.-based company, which last February announced the deal to purchase Davidson in a stock swap valued at around $1 billion. All told, CUC has spent more than $2 billion building up its software division.

The $86 million purchase of Knowledge Adventure was first announced in early November and it closed Feb. 3.

Analysts remain skeptical about the recent software acquisitions by CUC, whose core business is selling memberships to various discount clubs.

"There are some synergies involved between these companies and CUC's other operations, but those are pretty weak synergies to justify spending $2 billion," said Craig Bibb, a high-growth stock analyst with PaineWebber.

Investors seem to share Bibb's concerns. CUC's stock has never recovered since the Davidson purchase. Before that deal was announced in February 1996, CUC stock was trading at $37.50 a share; it began dropping steadily after that, trading below $20 in March and April.

It has rallied somewhat since then and was trading between $23.50 and $24 last week.

CUC's Hamilton said the company's new software operations will help it fulfull its original goal of selling membership services through the personal computer. Software developers at the four companies are now being used to create a CUC Web site called NetMarket, which is scheduled to debut in June.

In addition, Hamilton said the various software products created by Davidson, Knowledge Adventure, Blizzard and Sierra will be sold through CUC's special distribution channels, in addition to retail stores.

For example, CUC is putting together a school fundraising program through which children sell educational software products, and a portion of the proceeds goes to their schools.

But according to Bibb, the real reason behind CUC's recent acquisitions has to do with the extreme fragmentation of the software market.

CUC management thinks it can reduce overhead by consolidating distribution, back office, customer service and other functions for several different companies, and eventually generate heavy profits.

He said it's too early to tell whether the strategy will be a success.

Meanwhile, Jan and Bob Davidson surprised many software industry observers when they stepped down last month as heads of the company they had founded.

Davidson & Associates was started by former school teacher Jan Davidson in 1978, and her husband Bob stepped in to run the company in 1989 after the launch of its most successful product, "Math Blaster." After their company was acquired by CUC, Bob stayed on as CEO and Jan as president.

In November, the Davidsons sold half their CUC stock, netting about $400 million. They remain CUC's largest individual shareholders, with a 4.1 percent stake, according to Hamilton.