Best Buy and Napster 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.
MacDailyNews Take:
Me Gorog. Me still have job. Me like new Geek Squad VW bug (me ignore its iPod integration). Me get to park right by front door.
According to Best Buy’s press release, “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, in the press release. “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.”
According to Best Buy’s press release, “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, in the press release. “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, in the press release.
MacDailyNews Take:
Me Gorog. Me finally off hook. Whew!
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 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.
[Thanks to MacDailyNews Reader “David C.” for the heads up.]
MacDailyNews Take:
Looks like we’ll have Napster to kick around for a bit longer.
Great move. This should definitely put a strain on the Apple/Best Buy relationship.
wow….just wow
waste money much?
I’ve got some second hand toilet paper for sale. One careful owner.
Customer: Hi, where are the iPods?
Best Buy Employee: They’re all the way in the back. Here, I’ll show you. But before we get there, let me show you the new BestBuyNapster XST-01H MP3 player first. It’s so much better than the iPod, and with your subscription fee of $24.99 a month, your product replacement plan is included! So when, er, if your XST-01H ever breaks, we’ll repair or replace it for free!
Customer: Wow! Will it work with Vista?
Best Buy Employee: Of course, it’ll only work with Vista!
shouldn’t Napster be allowed to create a client that works on iPhone and iPod Touch? what’s going on with Apple.
Interesting deal, looks like 1+1=0.8 to me, the high paid guys with calculators are never wrong though.
Why do I suddenly imagine the board of directors of Best Buy slumped over in unconscious piles on the boardroom floor with a giant club lying next to them and the smell of raw meat, sweat and fear choking the hallways?
MDN, you think it’s cool to make fun of someone’s name? Are you in second grade? Get someone more mature to write your “take” next time.
“shouldn’t Napster be allowed to create a client that works on iPhone and iPod Touch?”
No.
And here’s an explanation. Take your time and read it slowly:
http://en.wikipedia.org/wiki/Capitalism
How many more times will the Napster hot potato be passed around…?
Until someone finds the sour cream?
Looks like Circuit City may be around after all, at this rate it’s Best Buy that will be filing for Chapter 11.
Take a nap, star while we relieve you off that wad of cash!!!
It’ll be funny if Apple pulls their products from Best Buy shelves.
“Best Buy believes that Napster has one of the most comprehensive and easy-to-use music offerings in the industry”
wow.
what color is the sky in their world?
Since Apple just passed (both) Wal-Mart and “Worst Buy” as a retailer of music in the U.S., perhaps BB is truly worried about their “music” business…if a BIT too late.
Although here in Minneapolis (BB’s hometown) the cool kids (and the cool old farts) all shop at The Electric Fetus (or Treehouse Records or Eclipse), those folks still buying physical “pre-recorded” media shop at BB.
I’d guess they (BB) will use their huge leverage with the labels to secure favorable terms to sell DRM-free tracks, bundle it with a “player of the month” and install it on every PC they sell at retail.
BTW, their Apple “store within a store” locations that I’ve checked out are nicely merchandised, but relatively tiny (and never really staffed…I’ve sat and surfed unharrassed for 15 minutes at a time).
(no coffee..corrections:-)
“,,those (OTHER) folks still buying physical..”
and “sat (as in stood there) and surfed..”(as there are no chairs at the BB displays)
@Falkirk: Take a valium, dude!
Clearly, BestBuy is making more money than they know what to do with. How else to explain such a monumental waste of cold, hard cash?
Why? Quit giving this company money. Napster is stuck in groundhog day with one nail away forever.
I’m switching to Circuit City purchases
A recruiter called me a couple of years ago, looking for a VP of Engineering at Napster. I told him I had fairly shallow management experience but they still wanted me. I think that says a lot about what a broken organization they are. I declined the interview. I sure don’t regret it now; who would want to be middle management at Best Buy???
This transaction will cost $121M. Napster has $67M of cash and short-term investments. This leaves a net cost of $54M to Best Buy. Napster has 700,000 subscribers. This means that Best Buy is buying each subscriber for $77.14, or a small number of months of the subscription fees. Seems like a low number to me. They must expect much from this transaction.
I meant to say They must NOT expect much from this transaction.
$2.65/share??
Aw Shucks! And I just moved all my stock over to Lehman Bros. How are they doing today?
Well, that’s a tidy little some to retire on, especially considering they produced virtually nothing.