Best Buy Snags Napster for $121 Million

Consumer electronics retailer Best Buy has announced it is buying online music service Napster in a deal worth $121 million.

Consumer electronics retailer Best Buy has struck a deal to acquire online music service Napster in a transaction totaling some $121 million. The transaction has Best Buy paying $2.65 per share of Napster—just about double the company’s closing stock price last week; as part of the deal, Best Buy also get about $67 million in short term investments and cash held by Napster, making Best Buy’s net cost about $54 million. The companies expect the deal to close during the fourth quarter of 2008, with current Napster CEO Chris Garog and other key Napster execs entering into "employment agreements" with Best Buy…although we wouldn’t expect to see them turning up in those Geek Squad cars. Best Buy plans to keep Napster and its 140 employees located in Los Angeles.

"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 Best Buy president and COO Brian Dunn, in a statement. "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."

Best Buy says it wants to leverage Napster’s capabilities—and 700,000 or so subscriber base—to create an "enhanced experience" for exploring and purchasing music and other digital media on a variety of devices—especially in the mobile arena.

The deal makes it seem like Best Buy picked up Napster for a song: although Napster has never been at the front of the pack of legal online music services and lost $16 million last year, the company racked up over $127 million in revenue during its 2008 fiscal year, which represented a 15 percent increase over fiscal 2007. The acquisition sets up Best Buy to be a vertical player in the digital media market, offering entertainment hardware and ongoing digital content services to customers, putting it in direct competition with companies like Microsoft, Amazon, and (of course) Apple.

The two companies have partnered before, with Best Buy picking Napster as its preferred in-store music service all the way back in 2004.