Ending weeks of speculation, CMGI said Tuesday it agreed to buy 83 percent of AltaVista for about US$2.3 billion in stock to turn the search engine into a "mega-portal" to serve as a hub to all of CMGI's diverse Net holdings.
The purchase also includes Compaq's other Net holdings, including online retailer Shopping.com and city-guide developer Zip2.
CMGI, an investment company that specializes in Internet-related companies, already owns 10 Net companies and holds sizeable investments in 30 others. By weaving the assets of those companies with AltaVista's high-traffic site, CMGI will both build a formidable Net portal and a launching pad for new IPOs.
"It's a very good deal for CMGI," said John Robb, an analyst with Gomez Advisors. "CMGI can use AltaVista to boost all its other Net companies and then spin them off in IPOs. They've basically set themselves up as the monster Net incubator."
CMGI's stock (CMGI) surged $13.94, almost 15 percent, to $111.63 by early afternoon. Meanwhile, Compaq shares (CPQ) rose 94 cents to $23.25.
Under terms of the agreement, CMGI will give 19 million of its common shares and preferred stock equal to 1.8 million common shares to Compaq for an 83 percent stake in AltaVista. Compaq will hold the other 17 percent of AltaVista, and will become CMGI's largest outside shareholder, with a 16 percent stake. Compaq will retain a seat on AltaVista's board.
The transaction comes one day after AltaVista unveiled its plans to morph from a search engine into a multifaceted Web portal that will take on the likes of Yahoo and Excite@Home.
"Conventional wisdom is going to say we're too little, too late," said AltaVista CEO Rod Schrock, "But I assure you, we're not."
The new AltaVista will feature more shopping and search capabilities, 42 local community sites developed in partnership with newspapers, and a "microportal" that will let surfers receive customized Web info on their desktops, the companies said.
Joining CMGI should help AltaVista jump-start its efforts.
"We see a tremendous opportunity to combine our assets with the assets of AltaVista to create a mega-portal," said CMGI CEO Dave Wetherell.
For instance, AltaVista will now be able to target ads at surfers using the 35 million user-profiles developed by the CMGI-owned company Engage. Previously, AltaVista had no profiling capability, and the rate it could charge advertisers was well below industry standard.
Among other things CMGI may help AltaVista do: buy a community site that would make AltaVista competitive with Yahoo's Geocities and Lycos' Tripod and Angelfire.
"Clearly we need to do more in that space," said Schrock. "Our strategy is to aggregate best of breed."
On Monday, before the CMGI announcement, Schrock was making bold predictions for AltaVista, projecting revenues of $200 million for calendar year 1999 and $600 million for 2000.
The acquisition also will help CMGI get out of a potential bind with the US Securities and Exchange Commission and the Internal Revenue Service. AltaVista will add enough operational assets to CMGI's holdings to help CMGI avoid getting reclassified as a mutual fund -- a status that would impose a huge penalty in taxes.
Compaq, meanwhile, divests itself of an asset outside its core hardware business, while gaining a powerful online ally in CMGI.
"Compaq didn't have any Internet smarts to offer AltaVista," said Robb. "AltaVista was extremely undermanaged."
Compaq planned to spin off AltaVista in a public offering later this year, but decided it had more to gain from the CMGI partnership and a stake in CMGI's broad portfolio of Net stocks.
The companies will work together to integrate CMGI's Net offerings into Compaq's PCs and other consumer products. Keys on Compaq keyboards will whisk surfers to AltaVista and other CMGI properties, for example.
The companies will also help develop industry-specific "vertical portals" for Compaq's large corporate customers.
