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Law may hinder sale of AltaVista

The portal, planning a public offering, warns potential investors that majority owner CMGI may hold on to its stake to avoid being tagged as an investment company under a securities law.

Internet portal AltaVista, which is planning an initial public offering, warned potential investors that a securities law may thwart its sale to another company after the IPO.

The company said majority owner CMGI, which operates a network of Internet companies, may hold on to its majority stake to avoid being tagged as an investment or mutual fund company by the Securities and Exchange Commission. The warning was in the standard "risk factors" section of the filing, which outlines every possible detrimental scenario that could face a company's future.

"CMGI's interests could conflict with the interests of our other stockholders," AltaVista said in its S-1/A filing with the SEC. "CMGI may be motivated to maintain at least a majority ownership position in AltaVista, even if other stockholders of AltaVista might consider a sale of control of AltaVista to be in their best interests."

In the not-so-distant past, owning stock in a profitable, publicly traded company over the long haul was considered a wise investment strategy, but in today's market environment, companies that are likely to be acquired are considered strong investments as takeover speculation fuels their stock prices even higher.

"We work specifically for our shareholders, and whatever we believe is going to maximize the value to our shareholders and is in the best interest of the company is what we will do," Andrew Hajducky, CMGI's chief financial officer, said in an interview.

The securities law--the Investment Company Act of 1940--states that a company whose investments make up 40 percent of its total assets is for all purposes an investment company. When CMGI first considered acquiring AltaVista from Compaq Computer last summer, sources said it was looking for major acquisitions to avoid being tagged as a mutual fund.

If CMGI allowed a suitor to acquire AltaVista after the IPO, it risks approaching the 40 percent level. The company will hold about 73.8 percent of AltaVista after the IPO.

"The 40-Act thing was something we tripped over a long time ago--over a year ago--and we have gotten that corrected," Hajducky said. "The only reason we bumped up against that was because we were so successful in our venture portfolio."

The company hit the jackpot last year when one of its earliest investments, free home-page service GeoCities, was acquired by Yahoo for $2.87 billion. CMGI also has made a killing by taking public many of its investments, including Engage Technologies, an online marketing company.

CMGI added that it has distanced itself from being an investment company largely because of the many acquisitions it has engaged in during the past year. The company has been on a tear: In the past few weeks it acquired services firm Tallan and online auctioneer uBid.

"That makes us an operating company," Hajducky said.

CMGI's possible reluctance to shed its stake does not bode well for investors.

AltaVista's filing with the SEC adds that CMGI's ownership "may have the effect of delaying, deferring or preventing a change in control of our company or discouraging a potential acquirer" from making any moves that "in turn could adversely affect the market price of our common stock."