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Filings Watch: How Napster Deal Came About: Best Buy Lowered Offer Price During Negotiations

imageHow did the BestBuy-Napster (NSDQ: NAPS) deal come about? Well, after UBS contacted about 80 players over the years (it became a running joke about who was looking at Napster any given week) and had given up, talks started with Best Buy early this year, according to a detailed SEC filing from Napster late on Friday.

Napster hired UBS as its banker in Sept 2006, and over a period of six month since then, the bank contacted about 80 different companies, and although this yielded some discussion, nothing serious came about. UBS’ contract expired in July 2007. Then, in early 2008, J.J. Schaidler, VP of Music at Best Buy contacted Chris Gorog, CEO of Napster, and started the discussions. BestBuy had owned about 1 million shares in Napster through a previous strategic marketing agreement in June 2004 and had kept it even though the deal expired over the years.

Negotiations went back and forth, and BB came back in June this year with confirming its interest in acquiring the company and indicating a price range of $2.75 to $3.50 per share, subject to diligence. By this time Napster had hired back UBS. In July, BB lowered its proposed offer price to $2.50 per share and stated that this offer price was contingent on, among other things, Napster maintaining its current cash balance. Napster countered with a $3 per share asking price and BB came back again, this time with $2.75.

At the last minute, on August 19, BB lowered its price again, this time to $2.50 per share, and then after much hand wringing, raised to to $2.65 per share, which both parties accepted. And then the agreement was signed on Sep 14th.

Lots more details in the SEC filing, including UBS’ opinion on the deal, and its comps with other public music providers such as RealNetworks (NSDQ: RNWK) and others.