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MP3.com pulls out of planned SeeUthere.com buy

The music download destination cites the unavailability of pooling of interest accounting for the merger, but says it will take a "major stake" in the Web event planner.

Music download destination MP3.com is pulling out of its planned acquisition of Web event planner SeeUthere.com, citing the unavailability of pooling of interest accounting for the merger.

Instead, MP3.com will take a "major stake" in the company for an undisclosed price. SeeUthere is expecting to raise up to $30 million from current and new investors in the coming months, the company said.

The companies will work together in a "strategic relationship" as a result of this deal.

"We're disappointed that we were unable to complete the merger, but continue to be excited about the prospects of combining forces with SeeUthere.com," Michael Robertson, chief executive of MP3.com, said in a statement.

MP3.com originally entered into an agreement to buy SeeUthere.com last December for $150.2 million in stock. The move was MP3.com's attempt to add Web-based event management services. The acquisition was also MP3.com's move into the ever-expanding online ticketing market, expected to grow to $3 billion by 2003, according to Forrester Research.

Under the pooling of interest method, a company can use its stock to purchase another company, recording the acquired company's assets at book value, rather than at the purchase price.

If the acquiring company uses a purchase accounting method, not only does the size of its assets swell and its return on assets shrink, but a sizable portion of the assets are accounted for under "goodwill" as well. That goodwill is written off against earnings.

The Securities and Exchange Commission has been scrutinizing the practice lately. The Financial Accounting Standards Advisory Board, which sets accounting guidelines, would like to see the practice eliminated altogether.

MP3.com is currently being sued by the Recording Industry Association of America (RIAA) for allegedly building an unauthorized catalog of digital music composed of copyrighted works in its My.MP3.com feature.

Weeks later, MP3.com answered by filing a lawsuit of its own against the RIAA. MP3.com is charging that the RIAA has engaged in unfair business practices against the company.

News.com's Dawn Kawamoto contributed to this report.