Best Buy will be acquiring Napster for around $121 million as the two companies have announced they’ve “entered into a definitive merger agreement” for Best Buy to scoop up all of Napster’s outstanding shares at $2.65. The deal will include all 700,000 Napster subscribers, Napster’s web-based platform, and key employees.
Best Buy already has a digital music initiative that’s powered by Rhapsody, so it’ll remain to be seen what happens with that. I’m guessing the company might just switch those users over to the new platform. We may also see Best Buy further develop its house brand of Insignia digital music players, possibly with some sort of package deals including Napster service.
Best Buy to Acquire Napster
MINNEAPOLIS & LOS ANGELES–(BUSINESS WIRE)–Best Buy Co., Inc. (NYSE:BBY) and Napster Inc. (NASDAQ:NAPS) announced today that the two companies have entered into a definitive merger agreement for Best Buy to commence a tender offer for all outstanding Napster shares at a price of $2.65 per share in cash. The transaction, with an aggregate purchase price of approximately $121 million (or $54 million net of approximately $67 million in cash and short term investments of Napster as of June 30, 2008), is subject to customary closing conditions, including the tender of a number of Napster shares that constitutes a majority of Napster’s outstanding shares of common stock (on a fully-diluted basis). The transaction is expected to close during the fourth calendar quarter. The transaction has been unanimously approved by the board of directors of Napster, and Napster’s directors and executive officers have agreed, in their capacities as stockholders, to tender their Napster shares and otherwise support the transaction.
The proposed acquisition includes Napster’s approximately 700,000 digital entertainment subscribers, its Web-based customer service platform, and innovative mobile capabilities. In conjunction with the definitive merger agreement, Napster CEO Chris Gorog and key members of senior management of Napster have entered into employment agreements, effective at closing, pursuant to which they have agreed to continue as the Napster leadership post-acquisition.
Best Buy believes that Napster has one of the most comprehensive and easy-to-use music offerings in the industry, including streaming music, music subscriptions, the ability to purchase individual tracks, albums and mobile offers. Napster has approximately 140 employees, with its headquarters in Los Angeles. At this time, Best Buy does not plan to relocate Napster’s headquarters or to make significant changes in personnel.
“This transaction offers Best Buy a recognized platform for enhancing our capabilities in the digital media space and building new, recurring relationships with customers,” said Brian Dunn, President and COO of Best Buy. “Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want.”
Best Buy intends to use Napster’s capabilities and digital subscriber base to reach new customers with an enhanced experience for exploring and selecting music and other digital entertainment products over an increasing array of devices. Best Buy believes the combined capabilities of the two companies will allow it to build stronger relationships with customers, expand the number of subscribers, and capture recurring revenue by offering ongoing value over a mobile digital platform.
“We believe Napster brings us excellent capabilities in the mobility space, as well as international operations and an established team of technology experts,” said Dave Morrish, Executive Vice President – Connected Digital Solutions of Best Buy. “We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions. We’re very excited to add these capabilities to leverage our existing relationships with the labels, the studios, and the hardware providers. We believe Napster will be an outstanding addition to our already robust portfolio of partners and offerings in the digital music space.”
“We believe Best Buy will be an ideal partner for Napster and are very excited by the benefits that this transaction delivers to our shareholders, partners and employees. Best Buy is uniquely positioned to benefit from Napster’s digital entertainment distribution platform. We are looking forward to combining our digital media capabilities with Best Buy’s resources and global network to extend our digital content platforms,” said Chris Gorog, chairman and CEO of Napster.
Under the terms of the definitive merger agreement, Best Buy will commence a cash tender offer to purchase all of the outstanding shares of Napster common stock for $2.65 per share in cash, with a supporting recommendation from the Napster Board of Directors. The closing of the tender offer is subject to customary terms and conditions, including the tender of a number of shares that constitutes a majority of Napster’s outstanding shares of common stock (on a fully diluted basis) and expiration or termination of the waiting period under the Hart Scott Rodino Antitrust Improvement Act. The agreement also provides for the parties to effect, subject to customary conditions, a merger to be completed following the completion of the tender offer which would result in all shares not tendered in the tender offer (other than shares held by Best Buy, treasury shares, and shares held by Napster shareholders, if any, who properly exercise appraisal rights) being converted into the right to receive $2.65 per share in cash. The directors and certain officers of Napster have entered into agreements with Best Buy pursuant to which they have agreed to tender their shares in connection with the tender offer contemplated by the merger agreement and otherwise support the transaction.
Napster, which recently launched one of the world’s largest MP3 stores, had fiscal 2008 revenue of $127.5 million, an increase of 15 percent over the prior fiscal year; a loss of $16.5 million, an improvement compared with a loss of $36.8 million the prior fiscal year; and positive cash flow for the fiscal year ended March 31, 2008.
Best Buy intends to complete the acquisition using available cash. UBS Investment Bank served as the exclusive financial advisor to Napster, and Napster is represented by O’Melveny & Myers LLP. Best Buy is represented by Robins, Kaplan, Miller & Ciresi L.L.P.