AltaVista warns law may thwart its sale
By Sandeep Junnarkar
Staff Writer, CNET News.com
February 17, 2000, 5:30 a.m. PT
Internet portal AltaVista, which is planning a public offering soon, warned potential investors that a securities law may thwart its sale to another company after the IPO.
The company said its majority owner, CMGI, a firm that operates a network of Internet companies, may hold on to its majority stake to avoid being tagged as an investment or mutual fund company by the Securities and Exchange Commission. The warning was in the standard "risk factors" section of the filing, which normally outlines every possible detrimental scenario that could face a company's future.
"CMGI's interests could conflict with the interests of our other stockholders," AltaVista said in its S-1/A filing with the SEC. "CMGI may be motivated to maintain at least a majority ownership position in AltaVista, even if other stockholders of AltaVista might consider a sale of control of AltaVista to be in their best interests."
In the not-so-distant past, owning stock in a profitable publicly traded company over the long haul was considered a wise investment strategy, but in today's market environment, companies that are likely to be acquired are considered strong investments as takeover speculation fuels their stock prices even higher.
The securities law--the Investment Company Act of 1940--states that a company whose investments make up 40 percent of its total assets is for all purposes an investment company. When CMGI was first considering acquiring AltaVista from Compaq computer last summer, sources said at the time that it was looking for major acquisitions to avoid being tagged as a mutual fund.
If CMGI allowed a suitor to acquire AltaVista after the IPO, it risks approaching the 40 percent level. CMGI will hold about 73.8 percent of AltaVista after the IPO.
All in all, CMGI's possible reluctance to shed its stake does not bode well for investors.
AltaVista's filing with the SEC adds that CMGI's ownership "may have the effect of delaying, deferring or preventing a change in control of our company or discouraging a potential acquirer" from making any moves which "in turn could adversely affect the market price of our common stock."
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