Compaq, CMGI seal AltaVista deal

Compaq Computer Corp. will sell a majority stake in its AltaVista Internet division to CMGI Inc., finalising a deal that has been rumoured for several days.

The $2.3bn (£1.40bn) stock swap calls for Compaq to keep a 17 percent stake in the portal site. Compaq will get 19 million shares of CMGI common stock and preferred shares equal to another 1.8 million common shares, making it the largest outside shareholder of the company. Compaq will also get a seat on CMGI's board.

CMGI will also issue a $220m, three-year note to Compaq.

The companies said today that Compaq will become a "premier IT partner" to CMGI, which owns stakes in several Internet companies, including rival portal site Lycos Inc. CMGI will integrate the AltaVista search engine into its network of 40 Internet properties.

Compaq acquired AltaVista with its purchase of Digital Equipment Corp. and had made some efforts at developing the division. It acquired the e-tailing site Shopping.com, and Zip2, a company that develops city guides. But it has been seen as an also-ran in the "portal wars", falling behind top-ranked Yahoo! and Lycos. CMGI is already a major investor in several Internet companies, quite a few of which overlap with AltaVista's offerings. Analyst's speculated last week that CMGI might want to divide up AltaVista's assets to see how they best fit with it's existing properties.

The deal also allows Compaq access to CMGI's properties. Compaq said it plans to integrate some of CMGI's assets into its PC lines, including browser and keyboard access to the AltaVista Network and other CMGI Web services. "It's really a win-win for both sides," said Jill Frankle, an analyst at International Data Corp. "It gives CMGI greater distribution one the Web for all its properties and services, and at the same time, it satisfies certain financial requirements that CMGI needed to do [so that it would not be considered a mutual fund]," she said. "It hits a couple of things on the checklist for them."

For Compaq, the deal allows it to shed a non-core business while still retaining an interest in the Internet. Compaq had planned to spin off AltaVista as a public company, and the companies did not say yet whether those plans are still viable, although officials told analysts yesterday that a spin off could still happen under new ownership.

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