CMGI to Buy AltaVista Search Engine

The directors of Internet conglomerate CMGI Inc. Monday night approved an agreement to buy Compaq Computer’s AltaVista search engine for between $2 billion and $3 billion in stock, according to a person who worked on the deal.

The company was expected to announce the pact before the stock market opens today, the person said.

Compaq will keep a 15% stake in Palo Alto-based AltaVista, the source said.

Announcements about the expected sale are likely to tout the synergy of combining AltaVista’s powerful search capabilities with CMGI’s Web advertising, chat room and other holdings.

But CMGI already has a minority stake in Lycos, which has a respected search engine for steering Internet users to desired sites. The AltaVista deal was actually driven in large part by tax law, the person said.

CMGI, which owns all or part of numerous Internet firms, risked being classified as a mutual fund if more than 40% of its assets are stock holdings in other companies. Such a classification would bring with it a raft of unwanted taxes and regulations.

CMGI shares have been falling in anticipation of the purchase because AltaVista is losing money and the expected price is far higher than earlier CMGI purchases.

The sale also would put Compaq in an awkward position as it tries to reposition itself from a personal computer maker to an all-around Internet expert providing consulting services and software as well as powerful hardware to run Web sites.

CMGI and Compaq had no immediate comment.

The stock of Andover, Mass.-based CMGI has risen more than sixfold just year to date, and the firm is worth $9.3 billion. It is expected to sell shares of AltaVista to the public later this year to recoup some of the cost of acquiring it.

Analysts said AltaVista’s usefulness to CMGI is uncertain.

“AltaVista may also have lost some momentum through its ownership change from Digital [Equipment Corp.] to Compaq,” wrote Keith Benjamin of BancBoston Robertson Stephens.

“We believe CMGI will continue to build value, with or without AltaVista,” Benjamin added.

And Rob Enderle of Giga Information Group said owning a search engine is useful mostly for generating media attention.

“AltaVista has one of the leading search engines, but the real question is how do you apply it to business?” Enderle said.

AltaVista Chief Executive Rod Schrock, a 12-year employee of Houston-based Compaq, said AltaVista’s value to business would become apparent whatever happens to it.

“Our search site has 35 million unique users and 1.5 billion page views a month,” he said. “And we are aggressively integrating e-commerce into our network.”