Bertelsmann Agrees to Acquire CDNow for $117 Million

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German media conglomerate Bertelsmann AG said yesterday that it agreed to acquire CDNow Inc. for $3 per share in cash, or about $117 million.

The acquisition follows a tumultuous period for the Fort Washington, PA, online music retailer, which in March canceled its plan to merge with music club direct marketer Columbia House and has seen its stock price plummet in the past year. It recently said it had been seeking a buyer.

Bertelsmann, Gutersloh, Germany, said CDNow would become a wholly owned subsidiary of the Bertelsmann e-Commerce Group, a division it formed this year. CDNow will continue to operate under its current brand after the acquisition closes, which is expected this fall.

Bertelsmann also said CDNow would become the "primary engine" for Bertelsmann's sale of music through online, broadband and mobile media. Bertelsmann already operates an online music destination called GetMusic in a joint venture between Bertelsmann's BMG Entertainment and Universal Music. CDNow will work with GetMusic to feature that site's content, according to Bertelsmann and CDNow.

In the first quarter this year, CDNow said it lost $37.8 million on sales of $43.6 million. In 1999, CDNow lost $119.2 million on sales of $147.2 million.

The company said in March that it was taking measures to lower its operating costs by $10 million to $12 million per quarter. Those measures included revamping its marketing strategy.

CDNow said it has 4 million customers and an average daily audience of 700,000 for its content and e-commerce features, which include music samples, news and guides to music genres.

Bertelsmann, which said it receives about 25 million unique visitors per month to its Web sites, also has unveiled other Internet initiatives this year, including an alliance with America Online to expand the distribution of Bertelsmann's online content and e-commerce properties globally.

Executives from CDNow and Bertelsmann were not immediately available for comment.

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