Napster (NSDQ: NAPS) has fallen into the arms of a surprise buyer: Best Buy. The big-box electronics giant will pay $121 million or $2.65 per share. Shares of Napster closed at $1.36 on Friday, so this is nearly double for those die-hards that have held on for the long ride down. Sale chatter had picked up in recent months, in part because the company’s share price was approaching the cash it had in the bank –and in fact, Best Buy is only paying $54 million, once you net out Napster’s cash and short-term investments. Napster had been involved in an unusual proxy fight with three individual shareholders, and in a recent statement on the matter, it gave a heads up that it was open to a sale. Release.
In the announcement, Best Buy says it will use the Napster platform to build out its digital delivery platform and build “recurring relationships” with its customers. More details in extended entry…
Conceptually, it has shades of the smartly nixed Blockbuster-Circuit City tie-up from earlier this year — but the deal is so small for Best Buy that it doesn’t carry too much risk. Best Buy and its chief rival Circuit City have been splashing around in digital distribution for awhile, though they haven’t made any waves: In 2006 it launched a Rhapsody-powered digital music store, which still exists here in some form. Way back in 2004, Best Buy actually had a marketing partnership with Napster (Roxio), giving it a $6 million stake in the company. It’s also dabbled in movie downloads, though again, with as much impact as anyone else has had in this. Circuit City, meanwhile, has also had a relationship with Napster (still kind of alive-looking MUSIC&cm_ite=175675%20VANITY%20URL%20NAPSTER&cm_keycode=429708″>here), and before that it owned MusicNow, which was eventually sold to AOL. Bottom line: Lots of press releases, partnerships and experiments, but very little to show for it.
As the company noted in its recent statement, Napster was advised on the deal by UBS. CEO Chris Gorog and other Napster senior managers have entered into employment agreements with Best Buy. In the release, there’s no word on layoffs or other cost cutting plans, though that’s obviously not what the deal is about.
Further details via an SEC filing on the deal:
– Napster will owe a $3 million breakup fee, should it break off the deal.
– As for the new employment agreements, CEO Chris Gorog, President Brad Duea and COO Chris Allen have signed on with Best Buy through March 3, 2012. Their base salaries are $400,000, $315,000 and $315,000 respectively, though they’ll each receive various performance-based bonuses. Gorog will also get a $1.75 million grant in restricted Best Buy shares.