Best Buy nabs Napster for $121 million

The online-music service, long since overtaken by more robust competitors, becomes a digital-entertainment resource for the electronics megaretailer.

Electronics retailer Best Buy is acquiring the Napster music service--its entree into the hot online-music sector.

The two companies on Monday announced a merger deal in which Best Buy is to launch an all-cash tender offer for outstanding Napster shares at $2.65 apiece, with the full acquisition valued at $121 million. That total value represents $54 million net of approximately $67 million in cash and short-term investments in Napster as of June 30.

Napster logo

In Napster , retail heavyweight Best Buy is getting itself a one-time contender in the field of online entertainment. A decade ago, Napster was virtually synonymous with digital music--a notoriety that earned it the wrath of the music industry. That contributed to its demise, along with the rise of alternatives such as Kazaa and LimeWire.

Napster eventually reinvented itself as a subscription service, and it says it now counts 700,000 subscribers.

Best Buy plans to use both Napster's technological capabilities and its subscriber base to reach consumers looking to explore digital music and other forms of entertainment "beyond music subscriptions" over a variety of electronic devices. The acquisition, Best Buy contends, will give it extra oomph in dealing with record labels, movie studios, and hardware makers.

But the digital-music stage is already crowded with stars ranging from Apple's iTunes powerhouse to Amazon MP3 . In the very near future, meanwhile, the social-networking scene is expecting not one, but two, big debuts: the likely arrival this week of MySpace Music and the possible unveiling of a music strategy for Facebook .

Los Angeles-based Napster has 40 employees. For its fiscal 2008, which ended in March, it reported a loss of $16.5 million on revenue of $127.5 million.

The deal is expected to close in the fourth calendar quarter. Napster CEO Chris Gorog and other senior managers have signed deals that will keep them with the company after the acquisition is completed.

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