CMGI to buy majority stake in AltaVista for $2.3 billion

Venture firm to create network of Web sites

June 30, 1999|By BLOOMBERG NEWS

ANDOVER, Mass. -- CMGI Inc., an Internet venture fund company, agreed yesterday to buy a majority stake in Compaq Computer Corp.'s AltaVista search site for $2.3 billion, mostly in stock, to create a network of World Wide Web sites.

The purchase puts CMGI in competition with Yahoo! Inc., Lycos Inc. and Excite At Home Corp. as a point of entry onto the Internet. AltaVista will link the Web sites of the dozens of Internet companies CMGI holds stakes in, as it looks to retain visitors longer and boost advertising revenue.

Compaq, the largest maker of personal computers, will cease managing the site as it battles slumping PC prices.

"With the backing of CMGI and Compaq, they have a good shot of becoming a top" Internet search service, said Ullas Naik, an analyst at First Albany Corp., who rates CMGI shares "accumulate."

Compaq will get 19 million CMGI common shares and preferred shares equal to 1.8 million common shares in exchange for 83 percent of AltaVista, giving it a 16.4 percent stake in CMGI. The company will also get a $220 million three-year note from CMGI.

The companies said the transaction gives AltaVista an implied value of $2.7 billion.

Buying AltaVista marks a shift in strategy for CMGI, which has financed Internet start-ups such as No. 3 search service Lycos, then reaped large returns when the companies go public or are bought. The company made a profit of about $1 billion from the sale of GeoCities, in which it held a 28 percent stake, to Yahoo! last month.

CMGI is using AltaVista to do what it could not with Lycos, analysts said. CMGI Chairman David Wetherell's relations with executives at Lycos, which CMGI formerly controlled and in which it remains the largest shareholder, soured after he helped block its proposed acquisition by USA Networks Inc. last month.

"It's too soon to tell" how the AltaVista transaction will affect Lycos, Naik said. "Is it necessary for [CMGI] to own Lycos at this time? There's probably less reason for them to own it."

Still, AltaVista has a long way to go to catch up with the top three Internet search sites, Yahoo!, Excite and Lycos, analysts said. Yahoo! had 31.3 million visitors in May, compared with 10.6 million for AltaVista, according to Media Metrix Inc., an Internet market research company.

CMGI and Compaq will spend $100 million in the next year and a half to promote AltaVista, Wetherell said. Compaq spent less than $1 million promoting AltaVista this year, he said.

Pub Date: 6/30/99

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