AltaVista sold at staggering $2bn loss

The internet search engine AltaVista has been sold by its owner CMGI, a US technology fund, for just $140m (£88m) – some $2.16bn less than it paid for it more than four years ago.

Overture Services, the US technology company which has a search engine capacity itself, is buying AltaVista in a deal made up of $60m of cash and $80m worth of shares.

AltaVista was worth $2.8bn in 1998 when CMGI bought its 83 per cent stake in the business for $2.3bn from the computer company Compaq.

The purchase price now being paid by Overture is also significantly beneath the valuations being touted for AltaVista at the peak of the dot.com bubble in the Spring of 2000 when it had hoped to float on the stock market. Its plans were cancelled when prices of technology companies went into freefall.

Overture said yesterday that the purchase of AltaVista would help it to offer a "significantly enhanced" internet search solution to internet service providers and other web sites. It currently offers a so-called pay-for-performance search on the internet which helps companies to be displayed more prominently on the results pages of searches.

Overture said: "AltaVista's advanced algorithmic search technology, which crawls the Web and returns relevant search results in response to users' queries, strategically complements Overture's market-leading technology in commercial search."

But analysts at Schroder Salomon Smith Barney were not convinced by the deal. "Either way, we are unconvinced that the transaction will enhance Overture's long-term earnings growth rate or materially improve its competitive position in the search market," they said.

The analysts added: "To our eye, Overture is one of the 'haves' in search while we view AltaVista as one of the 'have nots', with falling traffic, limited growth and technology that is in need of investment and improvement."

When AltaVista was set up in 1995 by engineers at the computer company Digital Equipment, it was one of the first to offer an internet search service.

Regarded as one of the rising stars of the dot.com era, AltaVista later branched out into internet service provision and other services such as offering a shopping channel. But it has since reverted to being a pure search engine and, in the process, has lost ground in that arena to rivals such as Google.

Headquartered in Palo Alto, California, AltaVista has about 250 staff worldwide and its search service delivers results in about 25 languages.

Overture said yesterday that it expected the deal to buy AltaVista to close in April and thought it would be earnings enhancing by the middle of next year.