As expected (CI No 3,692), Compaq Computer Corp has reached a $2.3bn agreement with internet incubator CMGI Inc over the web properties Compaq inherited from Digital Equipment Corp – namely the AltaVista search engine, Shopping.com and Zip2.com. CMGI will take a majority stake in AltaVista, adding that investment to similar positions in Lycos Inc, Adsmart and Critical Path Inc.
Compaq, in turn, will become the largest outside shareholder in CMGI. It works like this: Compaq swaps 83% of AltaVista for 19 million shares in CMGI. In return, CMGI issues a $220m three-year note to Compaq. The note makes the 83% share in AltaVista worth $2.3bn, implying a total value of $2.7bn for AltaVista as a whole. Compaq will also take a seat on CMGI’s board of directors. Assuming it can jump through the usual regulatory hoops, the deal is binding on both parties and does not require shareholder approval.
CMGI has designated Compaq as its strategic IT partner, while Compaq plans to integrate CMGI’s network of internet companies into its Presario consumer PCs. But the real focus of the deal is the freshly revamped AltaVista, which under the leadership of Rod Schreck now intends to become a mega-portal. In a conference call held to reassure press and investors that the complex deal is a winner, the hyperbole flew thick and fast. There is no limit to our long-term potential, Schreck said.
