CMGI-AltaVista deal imminent, sources say

The Internet venture fund company is expected to announce that it is buying the AltaVista from Compaq as early as tomorrow, sources say.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
3 min read
CMGI is expected to announce that it is buying the AltaVista Internet portal from Compaq Computer as early as tomorrow, sources said today.

Sources pegged the sales price at well over $2 billion in stock. In return, they added, Compaq will receive a minority stake in CMGI, of roughly 15 percent. Compaq and CMGI also will agree to cross-marketing alliances, such as direct links to CMGI Web sites from a keyboard on Compaq computer systems.

The board of CMGI, a venture capital company, is meeting today to approve the deal. An announcement is expected in New York before the stock market opens for trading tomorrow.

Compaq and CMGI declined comment on the possible sale of AltaVista, which has been under negotiation in recent weeks. CMGI still is interested in buying Lycos as well, an effort to build an Internet portal powerhouse.

On Thursday, Compaq confirmed that it was in "preliminary discussions with CMGI concerning the possible acquisition by CMGI of a controlling interest in Compaq's AltaVista Company. The preliminary discussions also include the establishment of a strategic relationship between Compaq and CMGI designed to advance Compaq's Internet strategy."

For CMGI, the deal gives its chief executive David Wetherell a platform to distribute his growing empire of Web properties, which include Critical Path.

The sale will allow Compaq to remain in the Internet business without being responsible for AltaVista's day-to-day operations. The computer giant recently has run into financial problems and is searching for a new chief executive to replace Eckhard Pfeiffer, who was ousted in April. It previously had considered an initial public stock offering.

CMGI has been on the prowl for a major acquisition to avoid being required to register as a mutual fund under securities law regulations, sources said.

Earlier today, AltaVista chief executive Rod Schrock said he could not comment on the deal, except to say that talks were "hot and heavy." Commenting on potential stumbling blocks, he told CNET News.com: "I couldn't tell you specifics, but there is just working out the financial and business side of things, which is fairly complex when you start talking about the broad range of services both companies offer."

The initial reaction among analysts was favorable. "It would be a good deal for Compaq," said Roger Kay, research manager for desktop hardware at IDC in Framingham, Massachusetts. "They would get [much] of the purchase price [of Digital Equipment, AltaVista's original owner] back again for a single property, which really hasn't done that well for them."

He added: "It's better they get the equity value out of that thing while Internet stocks are selling for high multiples."

Selling AltaVista also could boost Compaq's e-commerce efforts, said Joe Ferlazzo, analyst with Technology Business Research in Hampton, New Hampshire. "Unloading AltaVista would open a number of partnerships for bundling with their hardware," Ferlazzo added.

Separately, AltaVista today unveiled a redesigned site with a number of new features such as a "search freshness guarantee"--a guarantee that the site's index will be updated monthly--enhanced searches for multimedia content, and the ability to make purchases directly from search results pages. The company said it will offer 25 new features and will unveil a "next-generation AltaVista Network" by year's end.

News.com's Sandeep Junnarkar, Joe Wilcox, and Jeff Pelline contributed to this report.