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Compaq sets AltaVista IPO
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January 26, 1999: 12:52 p.m. ET
PC maker spins off search engine as separate company, strikes Microsoft deal
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NEW YORK (CNNfn) - Compaq Computer Corp. confirmed Tuesday it will spin off its AltaVista Internet navigator tool as a separate company, and follow-through with an initial public offering in the coming months, a move likely to turn up the heat in the already cutthroat search-engine sector.
Compaq (CPQ), the world's largest computer maker, said it restructured AltaVista Co. as a wholly owned subsidiary and appointed Rod Schrock as the president and chief executive officer of the new company. Schrock has served as Compaq's senior vice president and general manager of consumer products.
Eckhard Pfeiffer, Compaq's president and CEO, said his company's intention in creating a separate company, which will be headquartered in Palo Alto, Calif., is to "expand Compaq's leadership on the Internet."
AltaVista, which competes with the likes of Yahoo!, Infoseek and Lycos, is best known for delivering extensive -- some say overwhelming -- lists of results in response to queries.
Schrock said he expects AltaVista to become profitable in the next two years, and said the IPO could come as early as this year.
Compaq likely would retain a majority stake in the company if and when it completes an IPO, Pfeiffer told CNNfn.
"The potential is enormous with AltaVista," he said.
Analysts, who say an AltaVista IPO could fetch between $2 billion and $3 billion, agree. One analyst says the next step for the company should include a partnership with a media company, one like Time Warner (TWX), the parent company of CNN.
"Look at what Disney has done for Infoseek," he said.
In September, the search engine turned Web-portal announced it would partner with Walt Disney Co. to develop a new Internet service that will compete with Yahoo!, Excite and other high-traffic rivals.
In a separate announcement, Microsoft (MSFT) agreed Tuesday to license online communications technologies of MSN -- building on the MSN Hotmail Web-based e-mail services -- to Compaq's newly created, wholly owned AltaVista Co. subsidiary.
Microsoft said it will phase out the Inktomi (INKT) search engine as its primary search platform and AltaVista Search will serve as the primary Web search engine for the MSN network of Internet services. As part of its deal with AltaVista, each company's technology will be co-branded on the other's site.
"This agreement is a win-win situation for consumers as well as both companies," said Laura Jennings, vice president of MSN. "Users of AltaVista will enjoy the most popular e-mail system in the world, and users of MSN will have access to the largest search index on the Web in any of 25 languages."
Compaq could be positioning AltaVista as the next big player in the stock market's "dot-com" frenzy, which has driven Internet-related offerings to unprecedented earnings multiples.
Compaq acquired AltaVista last June as part of its $8.4 billion takeover of Digital Equipment Corp.
The company has been taking steps to develop the kinds of features that would make the AltaVista site into the kind of Internet "portal" that could attract and hold Web surfers with its range of content.
Last week, for instance, Compaq agreed to pay $220 million for e-commerce site Shopping.com. Schrock said at the time that the combination would offer a key complement to AltaVista's search capabilities.
"Our intent is to make AltaVista the leading guide for both information and e-commerce," he said.
But for the most part, AltaVista has not gone beyond its roots as a search engine, although it offers one of the most comprehensive searching capabilities on the Web.
Compaq shares were trading up 2-7/8 at 49-19/16 on the New York Stock Exchange after the announcement.
Shares in Microsoft (MSFT) also were higher, up 6-3/4 at 168-5/8 on the Nasdaq.
But shares of Inktomi (INKT) dropped 25 to 123-1/4, before regaining a little lost momentum. Its stock was down 17-1/4 at 131 at mid-day on the Nasdaq. 
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