Compaq, CMGI Confirm AltaVista Talks

CMGI Inc. and Compaq Computer Corp. confirmed Thursday they are discussing a deal that would have CMGI taking control of Compaq’s AltaVista search engine.

The confirmation follows days of speculation that a deal might be immiment.

The companies are also talking about forming a strategic relationship that would advance Compaq’s Internet strategy.

Both Compaq and CMGI cautioned the talks were only in the preliminary stage and said no further comments would be made until a deal is reached. However, various published reports said Compaq’s board might vote on a CMGI proposal as early as Thursday.

CMGI is reportedly willing to pay between $2 billion and $3 billion in stock for AltaVista.

Analysts told Reuters the deal would make a lot of sense for CMGI but would be a blow to Compaq as it struggles to define its electronic-commerce strategy.

“I’d rather see them move more quickly to capitalize on it, but not get rid of it,” Art Russell of Edward D. Jones said.

Compaq was considering spinning off AltaVista in an initial public offering, however many analysts believe the window of opportunity for a search engine IPO may have passed.

Russell said a sale of AltaVista would be beneficial to Compaq if the computer maker retained a strategic relationship with the search engine’s users.

For Compaq, the most likely reason to consider a sale, analysts said, is the cash which it badly needs. The computer maker last week warned it will report a second-quarter loss. That was one of the reasons that led to the departure of Eckhard Pfeiffer, Compaq’s former president and chief executive officer.

AltaVista would also give CMGI a flagship property that would help establish it as an Internet company rather than just an Internet mutual fund.

Also The Wall Street Journal reported Thursday that CMGI had been holding acquisition talks with Lycos Inc. although those discussions had stalled because of ill feelings between CMGI chief David Wetherell and Lycos Chief Executive Bob Davis.

The relationship between the two firms soured after CMGI, which owns 18 percent of Lycos, stopped the $2.5 billion merger between Lycos and USA Networks.