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Compaq To Sell Stock in AltaVista

January 26, 1999

NEW YORK (AP) _ Compaq Computer Corp. wants AltaVista, its Web-search service, to conduct a new type of search: Find riches on the World Wide Web.

Joining a race to cash in on the Internet stock boom, Compaq on Tuesday announced plans to spin off its AltaVista subsidiary into a separate, publicly owned company. Proceeds from the stock sale could help AltaVista strike deals with other Web companies and expand into a bigger Internet destination, offering everything from financial information to shopping.

That could help Compaq, which is already the No. 1 seller of personal computers, sell even more PCs. By luring more visitors to AltaVista, Compaq could draw shoppers to its own site and begin to catch up in online sales with archrival Dell Computer Corp., which sells more than $10 million worth of PCs a day over the Internet.

An autonomous AltaVista will be freer to enter agreements with rivals to Compaq, said Chris Lochhead, chief marketing officer at Scient Corp., a San Francisco-based electronic-commerce consultant.

``The competitiors in their market space have innovated much more rapidly and moved much more quickly,″ he said. ``This now unleashes them so they can be more like their competitors from that point of view.″

Compaq is the latest company to try to exploit investors’ seemingly insatiable demand for stocks with a ``.com″ suffix, which gives Web firms valuable currency for snapping up other companies. Walt Disney Co. two weeks ago saw its stock soar after detailing plans for a new Web site it developed with Internet search engine Infoseek, ratcheting up the competition with AltaVista, Yahoo and other popular Internet locations.

``We believe it’s the most effective way to achieve (our) business objective,″ Compaq chief executive Eckhard Pfeiffer said at a press announcement.

The spinoff plans announced Tuesday pushed Compaq’s stock up nearly 6 percent in trading on the New York Stock Exchange, rising 2.56 1/4 to close at $49.25.

AltaVista offers a widely used search engine and a variety of other options, including news, stock quotes and shopping services, and took in about $40 million in revenue last year. But it ranked No. 12 among Web sites last month, lagging Yahoo, Excite, Lycos and other top destinations, according to the Media Metrix research firm.

The spinoff plans eased intense speculation over Compaq’s plans for AltaVista, which it bought as part of its $9 billion acquisition of Digital Equipment Corp. last year. Compaq was said to be shopping around for another leading Web destination. The spinoff plans seem to make an outright purchase less likely, experts say.

AltaVista could raise from $2 billion to $5 billion in an initial public offering, giving it money to strike deals with other Web firms and possibly acquire lesser-known Web companies, said Piper Jaffrey Inc. analyst Ashok Kumar. But the stratospheric market capitalization of some firms could limit AltaVista’s ability to buy better-known Internet companies.

One possibility is for AltaVista to use its stock proceeds to enter a cross-marketing arrangement with an Internet service provider, such as a big telephone company, which could make AltaVista the default Internet destination for its subscribers. In return, AltaVista could use its Web site to advertise the Internet provider’s services.

As part of Tuesday’s announcement, Compaq said it reached a deal with Microsoft Corp. for AltaVista to become the primary search engine on the software company’s online service, the Microsoft Network. The stock of Inktomi Corp., Microsoft’s current Web search engine, tumbled after news that AltaVista would replace it.

Compaq officials would not say when the offering might occur, but the announcement comes at a time of ferocious demand for Internet-related stocks.

The first initial public offering of 1999, online financial news provider MarketWatch.com, soared 474 percent. MarketWatch followed the pattern of skyrocketing offerings last year from such companies as Web page provider theglobe.com, online auctioneer eBay.com, and Ticketmaster Online-CitySearch Inc.

The newly formed AltaVista Corp. will be based in Palo Alto, Calif., and headed by Rod Schrock, who has been senior vice president of Compaq’s consumer product group. Schrock led Compaq’s recent acquisition of Shopping.com, a popular shopping Web site.

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