Compaq today ended a week of speculation surrounding its AltaVista Internet search-engine business by announcing that it had agreed to sell 83% of AltaVista to Internet-investment company CMGI for $2.3 billion in stock and debt.
Under the terms of the agreement announced today, Compaq will receive common and preferred stock in CMGI equal to a 16.4% stake in the company, making Compaq CMGI's largest outside shareholder. In addition, CMGI will issue a $220 million, three-year note to Compaq. The agreement is subject to regulatory approvals but doesn't require shareholder approval.
Compaq acquired AltaVista when Compaq bought Digital Equipment in June 1998. Today's agreement represents an about-face for Compaq, which said last January that it would spin off AltaVista in an initial public offering.
"Our shareholders are better off having a significant ownership stake in a very broad portfolio of Internet technologies than total ownership of one property," Compaq chairman Benjamin Rosen said in a conference call today.
"This sale clears out some clutter from Compaq that they didn't need," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "AltaVista's synergy was with Compaq's consumer business, which is the tail not the dog at Compaq."
Dave Wetherell, CMGI's chairman and CEO said today that CMGI is considering doing an initial public offering of stock in AltaVista. Because many Internet IPOs have soared on their first day of trading, CMGI may be able to obtain a higher valuation for AltaVista through a public stock sale than the $2.7 billion value for the company implied by what CMGI paid for its 83% stake.
The agreement to sell most of AltaVista, along with its related properties, Shopping.com and Zip2, is part of a broader partnership CMGI and Compaq announced today. Under this partnership, Compaq plans to integrate the Internet capabilities of CMGI's network of 40 Internet companies into its consumer Presario Internet PCs, commercial PC, and enterprise offerings. AltaVista will become the default search engine on Compaq's Presarios for the next three years. CMGI also will collaborate with Compaq to develop Internet technologies.
Rod Schrock will continue as AltaVista's president and CEO, reporting to CMGI's Wetherell.
According to Media Metrix statistics for May 1999, AltaVista's collection of sites were the 10th most popular Web property, with 10.63 million unique visitors per month. That compares with 31.3 million unique visitors per month for sites controlled by Yahoo, 30 million for Lycos, and 17.2 million for the Excite Network. AltaVista is the second-ranked search engine on an international basis.