Under the terms of the deal, Universal will pay 57 cents in cash for each of EMusic's 43.2 million outstanding shares. EMusic closed below 45 cents at market close Friday.
On Thursday, EMusic said it was in acquisition talks with "a major music company" but declined to name the suitor. A source close to the deal confirmed Friday that Universal was the likely acquirer.
EMusic, an early seller of MP3 downloads, has struggled to persuade consumers to buy digital songs or subscribe to its catalog of independent artists. Many of its problems were fueled by the popularity of Napster, the free music-swapping service that the recording industry is suing.
With the acquisition, Universal will gain EMusic's catalog of 165,000 tracks and licensing agreements with 700 independent record labels. Universal will also control EMusic's editorial sites, RollingStone.com and DownBeat.com.
Universal has recently inked some aggressive deals to step into the online music market. It has teamed with Sony Music Entertainment to create an online music-subscription service dubbed Duet. Last week, Duet unveiled a nonexclusive agreement to offer its services through Web giant Yahoo. Universal has also allowed online music company RioPort to sell its songs for downloads through Viacom's MTVi Group, which runs MTV.com and VH1.com.
The cash offer for EMusic will go into effect by April 20, when Universal files with the Securities and Exchange Commission. The deal also includes conditions that EMusic will own at least $5 million in cash and securities by April 30 and will not depreciate more than $48,000 for each day after the offer closes.
Either company can scrap the deal if it's not completed by June 25.
"We feel that EMusic complements Universal's other digital and Internet initiatives, and we look forward to joining with them to offer music lovers more and more compelling online destinations and experiences," Larry Kenswil, president of Universal's eLabs, said in a statement.