CMGI Buys Majority Stake of Compaq’s Altavista

For about a week, Wall Street had been buzzing about a possible deal between Internet incubator CMGI (Nasdaq: CMGI) and computer manufacturer Compaq (Nasdaq: CPQ). The companies made it official today.

CMGI and Compaq announced that CMGI will take an 83 percent stake in Compaq’s Altavista search engine and its related properties, which include online retailer and online directory Zip2. In exchange, Compaq will become CMGI’s largest outside shareholder. Compaq will keep 17 percent of Altavista, receive a seat on CMGI’s board of directors and a 16.4 percent stake in CMGI.

Shares of CMGI were up 4-5/16 to 102 in early trading today. At that level, Compaq’s stake in CMGI is worth more than $2.1 billion (US$). CMGI will also issue a $220 million three-year note to Compaq. That values CMGI’s stake in Altavista at more than $2.3 billion. Shares of Compaq are up 5/8 to 22-15/16 in early trading today.

In inking a deal with CMGI, Compaq formed a pact with an Internet-savvy bunch. The company has an 18 percent stake in Lycos (Nasdaq: LCOS), and also had a minority investment in GeoCities, which was purchased by Yahoo! earlier this year.

“Our partnership will define and lead the consumer and enterprise market, from PC to web, by combining Compaq’s consumer Internet PC, commercial computing and infrastructure leadership, global reach and worldwide customer base with CMGI’s network of leading Internet technologies and destinations,” said David Wetherell, chairman and CEO of CMGI.

Altavista Will Be Integrated Into CMGI Properties

CMGI will integrate the popular AltaVista search engine into its network of 40 companies. In addition to being a major shareholder of Lycos, CMGI’s majority-owned subsidiaries include Activerse, Adsmart, Engage, iCast, Magnitude Network, NaviSite, NaviNet, Planet Direct and ZineZone.

Under the terms of the deal, CMGI also has designated Compaq as its strategic information technology partner. In addition, Compaq plans to integrate CMGI’s Internet companies into its Presario Internet PCs, commercial PC and enterprise computers. This new exposure, along with the traffic driven from Altavista, should be a major boon for CMGI’s pre-IPO companies. CMGI will also work with Compaq’s research labs to develop new Internet technologies.

Plans To Turn Altavista Into Portal

There is some concern that Altavista and Lycos may cannibalize each other’s business. After all, is there room for two portals in CMGI’s arsenal? Apparently CMGI believes so.

CMGI is intent on turning Altavista into a major portal presence. On Monday, AltaVista announced several new services including an updated search site, the world’s first microportal service and 42 local community portal partners.

“CMGI’s Internet leadership will greatly accelerate the AltaVista strategy announced just yesterday,” Rod Schrock, president and CEO of AltaVista said today.

“We believe in the power of the Internet and in the power of leading portals to capture and retain users,” Wetherell added. “The integration of AltaVista services with CMGI’s extensive network of best-of-breed Internet operating companies will create a formidable network. We see enormous opportunity ahead as we execute on the dynamic potential of our synergies.”

What About Gateway?

One major player that probably has mixed feelings about all this talk about synergy is Compaq competitor Gateway (Nasdaq: GTW), which recently invested $200 million for about two percent of CMGI. When the deal was made last month, Gateway and CMGI announced that they “will seek collaborative business and investment opportunities” on the Internet. Now it’s obvious that Compaq will have more clout with CMGI.

Of course, Gateway stands to benefit if Compaq and CMGI end up building a major portal presence. Such a move would boost CMGI’s stock price, as well as the value of Gateway’s investment.

News On Many Fronts

In other news Tuesday, Compaq announced that it formed an e-commerce alliance with (Nasdaq: PCOR) that will deliver e-commerce solutions to Compaq’s customers and resellers worldwide.

“The alliance with pcOrder is designed to enable Compaq to extend e-commerce strategies to its worldwide customer base, both direct and indirect,” said Compaq acting COO, Michael Capellas. “We will integrate pcOrder’s platform with Compaq’s enterprise-wide supply chain to deliver a united e-business strategy.”

The financial considerations of the agreement were not disclosed.

Capellas is Compaq’s acting COO for the same reason that Chairman Ben Rosen is the company’s acting CEO. A management shakeup in April saw former CEO Eckhard Pfeiffer shown the door and the company has been conducting an executive search since.

Continental Airline’s 37-year-old wunderkind CEO, Greg Brennerman, withdrew his name from a list of potential Compaq CEO candidates Monday, saying he did talk with Compaq but decided he was happy at Continental.

Earlier this month, Compaq warned that it expected a second-quarter loss – its first since 1991 – because of falling PC prices and higher costs. Analysts say the company has been struggling to assimilate its $8.3 billion purchase of Digital Equipment Corp. into its corporate structure.

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