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Bertelsmann buys CDNow for $3 a share

Bertelsmann AG, the German based media giant, will buy struggling music e-tailer CDNow (Nasdaq: CDNW) in an all cash deal valued at $3 a share, or $117 million, the companies said Thursday.

CDNow, which was running low on cash and has been looking for funding for months, sold out for a slight premium. CDNow shares closed at 2 7/8 on Wednesday, good for a market capitalization of slightly more than $94 million. CDNow shareholders will receive $3 in cash for each share they own.

Many CDNow shareholders were hanging on for a buyer, hoping that the company's customer base and Web traffic would be valued highly. Meanwhile, the CDNow saga dragged on as the company continued to look for a buyer. Other dot-coms could also face the same fate as CDNow -- few buyers, no premium and grumpy shareholders.

Under the agreement, CDNow will become a subsidiary of Bertelsmann's e-commerce group. CDNow will continue to operate under its brand once the deal closes. The company will be the "primary engine for all music commerce across online, mobile and broadband platforms and evolving technologies such as digital downloading and streaming."

Bertelsmann will advance to CDNow financing of about $42 million to pay off existing debt and fund the company until the deal closes.

The company will also work with GetMusic, an online music joint venture with Bertelsmann's BMG Entertainment and Universal Music Group.

While CDNow boosts Bertelsmann's e-commerce efforts, it doesn't leave much on the table for CDNow's shareholders and employees, which recently received re-priced options. CDNow is barely above its 52-week low of 2. The company has a 52-week high of 22 5/8.

Jason Olim, CDNow CEO, said in a statement that the agreement "represents a successful conclusion to our extensive search for a merger partner," and was We believe "the best outcome for our shareholders, employees and customers."

Olim and the rest of the CDNow management team is expected to stay on board. Olim will report to Andreas Schmidt, CEO of Bertelsmann's e-commerce group.

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