German media giant Bertelsmann AG announced Thursday that it will acquire struggling online music seller CDNow, Inc. for about $117 million (US$).
The Guetersloh, Germany-based company will pay about $3 per share for CDNow and assume $42 million of the company’s debt. Once a Wall Street darling, CDNow went public at $16 per share in 1998, but was almost 90 percent off its 52-week high of $21.56 at 4 p.m. Wednesday, when it traded at $2.88 per share on the Nasdaq Stock Market.
Bertelsmann said it will advance CDNow $42 million to pay off existing loans and to keep the company up and running until the transaction closes this fall.
A Good Fit
Despite CDNow’s financial problems, Bertelsmann said the acquisition fits into its long-term e-commerce strategy.
“With the transaction, we are taking another step in our strategy of establishing Bertelsmann as the world’s leading e-content, community and commerce company,” said Klaus Eierhoff, the Bertelsmann board member responsible for multimedia businesses.
CDNow President and CEO Jason Olim said the acquisition will enable the company to fulfill its original goal of providing “music fans with the ultimate music experience.”
Rocky Financial Road
Many analysts believe the acquisition could finally stabilize a company that has been teetering on the brink of financial disaster.
Since it was founded in 1994, CDNow has lost $212 million. In March, auditors created “substantial doubt” about the company’s viability, reporting a slim $28.7 million on its balance sheet.
Since that pronouncement, CDNow put on the best face possible and issued a series of statements about possible investment deals.
In May, Mexican billionaire Carlos Slim Helu, one of the richest men in Latin America, bought a 9.2 percent stake in the company for $52.8 million. That infusion of cash came after the company reported a loss of $28.2 million or 92 cents per share, for the first quarter of this year.
Last month, in its most dramatic cost-cutting measure to date, CDNow closed its London office, but said it would continue to maintain a presence abroad and sell its products worldwide.
About the same time as the London closing, the company said it had finalized a one-year marketing deal with Time, Inc. which will provide CDNow with promotions throughout the publishing company’s online and offline magazines in exchange for promoting Time through CDNow.
Saviors in Short Supply
CDNow stockholders have had several brushes with hope over the past few months. A planned merger with Columbia House seemed to be the answer to the company’s problems, but it fell through in March.
In an attempt to soothe investors’ concerns, the company said at that time it still had a commitment from Time Warner and Sony to provide an additional $51 million in cash as an equity investment. It also planned to convert an existing $30 million short-term loan into long-term convertible debt.