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cuc/14″/mike1st/mark2nd DAN TURNER Staff Reporter CUC International Inc. completed its acquisition of Glendale-based Knowledge Adventure Inc. last month, furthering its unusual efforts to branch into the software business. Knowledge Adventure, an educational software firm best known for its “Jump-Start” series for toddlers, is the second hot L.A.-area software firm acquired by the East Coast marketing firm in the past year. The other is Torrance-based Davidson & Associates, which surprised Wall Street analysts Jan. 21 when its co-founders Jan and Bob Davidson unexpectedly resigned from their management roles. They will continue to serve on CUC’s board of directors. Following last month’s acquisition, Knowledge Adventure will operate under the umbrella of the recently formed CUC Software unit, which includes Davidson & Associates, Irvine-based Blizzard Entertainment and Bellvue, Wash.-based Sierra On-Line Inc. 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 at around $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 big profits. He said it’s too early to tell whether the strategy will be a success.

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