Consumer electronics store operator Best Buy Co. Inc. [BBY], the nation's third-largest music retailer, has reached a deal to acquire Napster Inc. [NAPS] for $2.65 per share, valuing the music subscription service provider at $121 million, including the $67 million in cash and short-term investments listed on Napster's balance sheet.
The price represents a 95% premium over Napster's closing price Friday of $1.36. Best Buy said it expects to complete the all-cash deal by the fourth quarter.
Napster said earlier this month that it had retained UBS AG for a second time, with the intention of exploring a sale. The company's share price had taken a beating in recent months, at one point dipping so low that its market capitalization was worth less than its cash holdings, effectively giving the business itself a negative value.
The deal staves off a potentially contentious scene at Napster's annual meeting, scheduled for Sept. 18 but now postponed indefinitely. Napster faced a proxy fight led by three dissident shareholders, one of whom received a vote of confidence last week from influential proxy advisory firm RiskMetrics Group's ISS Governance Services. But the current board of directors has unanimously approved the Best Buy deal, which it says will keep senior management in place after the acquisition is completed.
Best Buy already operates a digital music service via its Web site, powered by Napster competitor RealNetworks' Rhapsody subscription service. The brick-and-mortar retailer launched its first online music store in 2003, then launched the current incarnation in October 2006.
Napster, which took its name from the song-swapping service shut down by a Federal judge in 2001 before selling its assets in bankruptcy the following year, was never profitable, and lost $16.5 million on revenues of $127.5 million in the fiscal year ended March 31. Its customer base has shrunk to about 700,000 subscribers, who generally pay about $13 to $15 each month for access to a library containing about six million songs. All four major labels, as well as many indies, are represented on the service, which includes CD-quality streaming music and downloadable song files that expire once users cancel their subscriptions. The company launched a store to sell DRM-free downloads in May as well. -- Paul Bonanos
See press release from Best Buy and Napster
See Sept. 15 story on Best Buy's Napster deal from TheDeal.com
See prior posts from Tech Confidential about Napster's proxy fight here, here and here
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