CNBC- STREET SIGNS
INTERVIEW WITH COMPAQ CHAIRMAN AND ACTING CEO BENJAMIN ROSEN AND CMGI CHAIRMAN AND CEO DAVID WETHERELL
JUNE 29, 1999
SUMMARY: Rosen says CPQ is selling AltaVista in an effort to differentiate the company's Internet holdings. Wetherell plans to integrate AltaVista before strategizing an IPO for the portal.
Maria: After weeks of speculation, Compaq computer announced this morning it is selling control of its AltaVista search engine operations to the Internet company CMGI. Compaq will become CMGI's biggest shareholder after the company's Chairman and CEO, David Wetherell. Both stocks are trading higher today on the news. Joining us now from New York are CMGI's Chairman and CEO, David Wetherell. And Compaq's Chairman and Acting CEO, Benjamin Rosen. And joining me here in the studio, Steve Frank of "The Wall Street Journal," who has been reporting on this story. Welcome congratulations on your deal.
Thank you very much. Maria: Let me ask you, Mr. Rosen, why would you be selling AltaVista at a time when most people believe that it is the Internet strategy which your company must define at a time when PC business has come under some pressure?
We are not selling AltaVista. What we are doing is trading 100% ownership of one Internet company for a significant ownership in a portfolio of over 40 Internet companies that really is part of our Internet strategy. It greatly broadens our reach and breadth in the Internet area.
Maria: And what is the Internet strategy?
Our plan is to be one of the leading Internet companies of the future. This combines with our nonstop e-business strategy in the enterprise area that will give us the highest performance group of solutions in the Internet area.
Steve: David, it's Steve Frank. I wanted to ask you a question on pricing. You haven't disclosed officially AltaVista's revenues, but sort of hinted they're in the range of about $160 million annually. And that would suggest you're valuing the company right now at about 17 times current fiscal year revenues. That compares to about 31 times revenues for Lycos, or at least where Lycos is trading right now. Does that suggest you got a real bargain on AltaVista or does that suggest to you that Lycos is overvalued?
Well, it doesn't have to be one of or the other, of course. There are different ways of valuing companies and different metrics you need to look at. Lycos is closer to breakeven than AltaVista is. However, on the search engine part of the business, AltaVista looks to be profitable at this time and growing very quickly. The Shopping.com and Zip2 assets that we're acquiring here are earlier in their business evolution and are still experiencing reasonably heavy losses. We think that there's a great deal we can do to leverage up all those businesses and improve both the top and the bottom lines.
Let me just follow up asking you about CMGI's relationship with Lycos, where you still own a pretty hefty stake, I think something on the order of something like 18%. You've announced that many of your CMGI-owned Internets companies are going to be rolled up or affiliated somehow with the AltaVista search engine here, integrated into the search engine. Does that suggest they will have a lesser role to play with Lycos or that CMGI's relationship with Lycos will somehow change?
Not at all. These companies that are going to be integrated into the AltaVista portal are still going to remain a stand-alone business unit. And free to collaborate with other portals and a couple of them their own portals in their own vertical niches and in the case of Myfamily.com and Raging Bull, the second-largest financial community on the Web. And we have some broad more general interest portals that will also remain as independent business units and have every opportunity to collaborate with Lycos where possible.
Maria: Mr. Rosen, this, of course, one more change, a lot of changes ahead of naming a new CEO. Where does your search for the CEO stand at this point?
The search is doing very well. We don't comment publicly on it other than to say that we are on our schedule to find our permanent CEO.
Maria: And are you looking specifically within technology?
We're looking at both, within and outside technology.
Maria: With respect to the shift in revenues that we have been seeing within the PC area, within the PC industry, where some companies are trying to bundle Internet access. Along with selling a PC and perhaps at some point selling a PC at somewhat of a discount to get the person to buy into Internet access. Does that create an opportunity for Compaq to look for new sources of revenue, perhaps on the service area or the fee side?
Absolutely. We're looking at a variety of means of deriving recurring revenues from our PC sales in both our consumer as well as our commercial PCs. And I think this relationship we're announcing today with CMGI, it's a strategic relationship that will offer a variety of new services that will benefit both us and CMGI.
Steve: Mr. Rosen, it's Steve Frank. There's been some speculation, getting back to the issue of the CEO search, that by making all these decisions, by making the decision with regard to Compaq's recently announced restructure, by making this decision on Internet strategy, that you're complicating that search by taking away many of these decisions from a perspective new CEO. Do you feel that's the case? And assuming you don't, how active a role do you foresee yourself playing once a new CEO is named?
What we are doing are taking the steps that are necessary to make Compaq a stronger growing and more profitable company. We live in Internet speed today. And you can't waste a day where there's an opportunity. So, we've taken the steps that are necessary to get us growing and profitable again, steps that will make it easier for the new CEO when he or she comes in, not more difficult. And my role is to do what I've done for the last 16 years, except for the last 10 weeks, and that is to disappear into the woodwork as non-executive chairman.
Steve: Okay. Let me ask you another question, Mr. Rosen, related to your newfound stake in CMGI. At what point do you see yourself unlocking the value that you've now gained by selling those shares?
Well, we have no current plans to sell the shares. We cannot sell any shares in the first year. And then it's a percentage thereafter, but right now we're very happy to be shareholders.
Steve: Well, if that's the case, why the need for a lock-up agreement that allows you to sell those shares, half in a year and half in 18 months?
Well, I don't want to go into all the details of the agreement. Let me just say that we're very pleased to be a part of the largest outside shareholder of CMGI.
Maria: Mr. Rosen, you have had difficult financial results ever since acquiring Digital. What value did that bring? And is that value still there?
Digital and our previous acquisition, Tandem Computers, have provided us with all of the elements we needed to be a complete information technology to implement this nonstop E-business solution strategy. From Digital, we acquired 25,000 service people, we acquired AltaVista. We acquired the 64-bit alpha chip, a variety of products and services that we simply did not have and could not develop in a reasonable time.
Steve: David, it's Steve Frank again. I wanted to ask you a quick question about your own Internet advertising companies that you own between Ad Smart and Engage, which together are considered rivals to DoubleClick, which obviously, has a big relationship with AltaVista, that I understand is under contract for another three years. What can you tell us about that relationship with DoubleClick? Do you expect to get out of it after three years? And secondarily, what can you tell us about CMGI's plans, ultimately, to take AltaVista public again?
As far as DoubleClick's concerned, we have every intention of honoring the agreement that's in place. In looking to ways that we can extend the relationship that we have beyond AltaVista with DoubleClick. You talked about Engage in particular. There is the distinct possibility or opportunity to extend all that Engage has to offer to DoubleClick. Certainly, we expect to provide Engage profiling to the AltaVista set-up properties. We believe that that is something that would benefit all the other DoubleClick properties as well. We haven't had those meetings with DoubleClick at this time. So, it's not clear what the long-term relationship will be. As far as IPO opportunities, it is our business model to take companies public. When they are best ready, we're going to wait until we finish further along down the road of integrating all of the CMGI collection of properties into the AltaVista megaportal before we pick a day and strategize with the AltaVista management as to what the best time would be for an IPO.
Maria: Gentlemen, once again our congratulations and we thank you for joining us.
Thank you very much. Thank you.
Maria: CMGI's David Wetherell and Compaq computer's Benjamin Rosen and our thanks to Steve Frank in the studio.
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