Napster Inc., the online music community that rose from a dorm room project to became the scourge of the global recording industry, is being purchased by Best Buy Inc. for nearly $127 million as the retailer tries to boost its digital music business.
The $2.65 per share all-cash deal announced Monday is nearly double the music network's Friday closing price. But it's a small sum to pay by Best Buy, which gets access to Napster's 700,000 subscribers who pay a monthly fee to access digital music catalogs.
“It's not a huge investment, but it definitely has brand recognition,” said Morningstar analyst Brady Lemos. Best Buy also benefits from the acquisition of technical expertise about the digital music industry, Lemos said.
Napster, a once-free file-sharing network incorporated in 2000, was a favorite tool among college students earlier in the decade. But the company fueled a cultural, legal and political debate about copyrights and intellectual property while at the same time helping popularize digital music.
The takeover, which must receive regulatory and shareholder approval, is expected to close in the fourth quarter.
Richfield, Minn.-based Best Buy said it doesn't plan to relocate Napster from its Los Angeles headquarters.
Morgan Keegan & Co. analyst Tavis McCourt called the offer a potentially intriguing acquisition.
“Best Buy has been making headway into selling mobile handsets recently, and has been offering a Best Buy Music Store (powered by Rhapsody) for some time,” McCourt told investors in a research note. “We expect Best Buy will likely utilize Napster as a means of bundling digital content with its PC and mobile handset offerings.”
The deal is also a boon for Napster, which last month reported a loss of $4.4 million, or 10 cents per share, as revenue slid 6 percent.
Napster shares rose $1.17, or 86 percent, to $2.53. Best Buy shares fell 79 cents, or 1.8 percent, to $43.70.