Best Buy Co., a retailer of technology and entertainment products, and Napster, a pioneer of digital music, announced they have entered into a definitive merger agreement for Best Buy to purchase all outstanding Napster shares at a price of $2.65 each.

 

The transaction, with an aggregate purchase price of about $121 million, is subject to customary closing conditions. The transaction is expected to close during the fourth calendar quarter.

 

“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.”

 

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 acquisition includes Napster’s 700,000 digital entertainment subscribers, its Web-based customer service platform, and innovative mobile capabilities. In conjunction with the 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 about 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.

 

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, EVP, 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,” said Chris Gorog, chairman and CEO of Napster.

 

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.

 

Best Buy, which generates more than $40 billion of annual revenue, intends to complete the acquisition using available cash. UBS Investment Bank served as the exclusive financial advisor to Napster. For more information about Best Buy, visit: www.bestbuy.com, or for Napster, visit: www.napster.com