Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Compaq and CMGI In $2Bln Cyber Deal

BOSTON -- Internet venture company CMGI Inc. will buy a majority stake in Compaq Computer Corp.'s AltaVista Internet search engine business for $2.3 billion in stock and debt, CMGI and Compaq said.

In exchange, Compaq will acquire an equity stake in CMGI, as well as a $220 million three-year note from CMGI.

The deal, announced Tuesday, has been expected since word of negotiations first leaked last week. It integrates AltaVista into CMGI's portfolio of 40 web companies and provides the Andover, Massachusetts-based company with the ability to cross-market its sites with AltaVista. Media Metrix ranks AltaVista as the Internet's 10th most popular site.

The deal puts the technologically powerful but undermarketed AltaVista into more Internet-savvy hands, while Compaq retains a piece of web access to tie in to its millions of personal computer customers, analysts said. Compaq is the world's largest PC maker.

Analyst John Robb of Gomez Advisors in Concord, Massachusetts, said the deal is "just smart" for both Compaq and CMGI.

"AltaVista has been an undermanaged company," he said. "CMGI has a boat load of portfolio companies that it wants to paste into AltaVista's traffic stream."

Compaq said the deal greatly boosts its Internet strategy.

"One Internet property does not make an Internet strategy," said Compaq senior vice president Bill Strecker in an interview.

"By exchanging majority ownership of one property for ownership in a very large portfolio of properties, we think that Compaq has really rounded out its Internet strategy," he said.

Acting Compaq chief executive Benjamin Rosen added: "We are committed to becoming one of the leading Internet companies of the next generation."

Compaq has had difficulty revamping its distribution strategy and digesting its purchase last year of Digital Equipment Corp. Earlier this month it warned it would report a second-quarter loss resulting from pricing pressures, and in April then-chief executrive Eckhard Pfeiffer was forced to resign.

CMGI will also take control of Compaq's and Zip2 web sites, which are considered part of AltaVista. Compaq, meanwhile, will integrate CMGI's Internet offerings into its PC offerings through web browser and keyboard access to AltaVista and other CMGI services.

Bringing AltaVista under the CMGI umbrella will "come close to doubling" the $168 million in revenue CMGI now derives from its nine majority-owned Internet properties, said CMGI CEO David Wetherell. CMGI owns stakes in 30 other Internet firms.

Wetherell said Compaq has spent just $1 million in 1999 on branding AltaVista. To boost the site's identity, CMGI and Compaq will contribute $50 million apiece to jointly market and brand their firms, with AltaVista as the centerpiece.

As part of their alliance, Compaq and CMGI said they will jointly develop Internet technologies and web appliances.