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CMGI inks AltaVista deal
June 29, 1999: 4:33 p.m. ET

$2.3B pact brings Compaq new Internet strategy, link with CMGI
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NEW YORK (CNNfn) - Internet investment firm CMGI Inc. agreed Tuesday to buy most of Compaq Computer's AltaVista search engine in a $2.3 billion stock swap -- a deal meant to allow the nation's biggest personal computer maker to focus on its struggling PC business.
     For CMGI, which has stakes in about 40 Internet companies, the deal provides a new gateway to draw visitors to its stable of online services. For its part, Compaq keeps a minority stake in AltaVista, which it can preinstall on the millions of personal computers it sells, and puts the search engine into more Internet-savvy hands, industry analysts said.
     Under the deal, CMGI gets 83 percent of AltaVista and Compaq retains the rest. In exchange, Compaq receives CMGI stock equal to a 16.4 percent stake in the Internet investment firm, as well as a seat on CMGI's board.
     "It's far more than what on the surface looks like an exchange of shares," Compaq Chairman Benjamin Rosen said in a conference call with analysts and reporters. "We see this as a huge business opportunity for Compaq."
Investors like the deal

     Investors liked what they saw and sent CMGI (CMGI) stock soaring 9-15/16 to 107-5/8, a 10 percent gain, while Compaq Computer (CPQ) added 15/16 to 23-1/4.
     Houston-based Compaq recently forecast a loss for the second quarter -- its first money-losing quarter in eight years -- as it struggles to compete with Dell, IBM and other rivals that have been quicker to sell their wares directly over the Internet.
     Finding a new home for AltaVista has been a key goal for Compaq, which ousted Chief Executive Eckhard Pfeiffer in April and is searching for a new CEO.
     Under the deal, CMGI also gets, an online retail site, and Zip2, a Web directory --properties that Compaq bought after it got AltaVista as part of its $9 billion purchase of Digital Equipment Corp. last year. Compaq in January announced plans to spin off part of AltaVista as a public company, but that was before Pfeiffer was ousted.
     "I think it makes sense," Paul Noglows, Internet analyst at Hambrecht & Quist, said of the deal. "CMGI has always been about traffic," he said. "This brings 1.4 million page views per month.".
     CMGI's business model centers on building Web properties to take them public and AltaVista is likely to make a good fit, CMGI Chairman David Wetherell said. "I think AltaVista could go public at any moment," he said in the conference call.
     CMGI's main holding has been an 18 percent stake in Lycos (LCOS), the No. 2 Internet portal. Boston-based CMGI successfully fought off a bid for Lycos by USA Networks (USAI) earlier this year but lost its seat on the Lycos board in the process.
Is Lycos next?

     Some analysts think CMGI may also try to swallow Lycos.
     "I don't think this precludes them from going after Lycos," said Noglows, who has a "buy" rating on CMGI stock. "I'm not sure that CMGI doesn't have a grand scheme that integrates both."
     Among the top investors in CMGI are Japan's Softbank, Microsoft (MSFT), and Compaq rival Gateway (GTW).
     Based on CMGI's Monday closing price of $97.69, the stock part of the transaction carries a value of more than $2 billion. CMGI also will issue a $220-million, three-year note to Compaq, lifting the deal's total value to about $2.3 billion.Back to top
     -- from staff and wire reports


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