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"We’re [now] part of a private company with a long-term view, extraordinary global assets, very powerful ambitions and tremendous reach through both its internal media assets and its strategic alliances with major companies like AOL and Terra Lycos."
—Jason Olim, CDNow
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JASON & THE BARGAINAUTS

Bertelsmann Plunks Down Spare Deutsche Marks To Rescue CDNow
Bertelsmann has inked a definitive merger agreement to purchase troubled e-tailer CDNow for approximately $117 million.

The big German media outfit will pay about $117 million, or approximately $3 a share. It will assume about $42 million in CDNow debt to pay off existing loans and to fund CDNow's ongoing operations until the close of the deal. CDNow's stock opened at $16 a share when it went public in 1998 butwas nearly 90% off its 52-week high of $21.56, closing at $2.875 on today's Nasdaq.

As part of the deal, CDNow will become a wholly owned subsidiary of Bertelsmann e-Commerce Group (BeCG), launched earlier this year, to drive Bertelsmann's global e-content, community and commerce business.

"With this 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. "With its strength in traditional e-commerce and music content, as well as leading technologies such as digital downloading and custom compilations, CDNow is a pioneer in its field and an excellent fit with our online and offline music assets."

CDNow, which will be integrated as the music-distribution platform into all Bertelsmann assets, will continue to operate under its brand name after the transaction closes. It will become Bertelsmann's primary engine for all music commerce across online, mobile and broadband platforms and evolving technologies such as digital downloading and streaming. In addition, CDNow will work with GetMusic, the online joint venture between Bertelsmann's BMG Entertainment and Universal Music Group.

"Andrew Nibley came over from Reuters to run GetMusic, and we have a tremendous opportunity to work together and build each other's businesses," CDNow President/CEO jason olim',390,400);">jason olim',390,400);">Jason Olim told hitsdailydouble.com. "You have to remember, we're half-brothers--we don't have the same [parent company], and obviously that creates some limitations on how we can work together. But we certainly are going to explore all the ways that we can provide commerce to GetMusic and for GetMusic to provide content to CDNow."

Following the completion of the offer, Bertelsmann intends to consummate a second-step merger in which all remaining CDNow shareholders will receive the same price paid in the tender offer. The transaction is expected to close in the fall.

The CDNow Board of Directors has unanimously approved the merger and intends to recommend that CDNow shareholders tender their shares into the proposed offer. jason olim',390,400);">jason olim',390,400);">Jason Olim and Matthew Olim, co-founders of the company, have agreed to tender their approximately 5.8 million shares (about 17%) into the offer.

CDNow management is expected to remain at the company, with jason olim',390,400);">jason olim',390,400);">Jason Olim reporting to BeCG President/CEO Andreas Schmidt.

Interestingly, the CDNow deal was made by Bertelsmann and not its music division, BMG Entertainment, surprising many in the industry.

"Of course, the key executives across all Bertelsmann units were involved in this," Olim said. "The deal happened out of the Bertelsmann e-Commerce Group; we're really the first big action that they've undertaken in their six-week history. But the BeCG is a total stand-alone business and not part of BMG. So clearly, just as there were all of the concerns and all of the walls that we had to put in place to keep us independent from the music companies at Warner and Sony, those same protections are being put in place here because we are an independent platform, not part of the music group."

The CDNow deal is pocket change for Bertelsmann, which generates $16 billion in revenue a year selling books and music and running television stations. Schmidt said more acquisitions could be expected as the company refocuses its e-commerce strategy to reflect the pending mergers of AOL with Time Warner and Vivendi with Seagram.

CDNow has been looking for a buyer since its merger agreement with Columbia House, a joint venture of Time Warner and Sony Music, fell apart earlier this year.

"In a lot of ways, [the deals are] awfully similar," Olim said. "Bertelsmann is a media company with tremendous assets across the range similar to Sony and Warner. But in terms of what it means for our brand, for our business, we're [now] part of a private company with a long-term view, extraordinary global assets, very powerful ambitions and tremendous reach through both its internal media assets and its strategic alliances with major companies like AOL and Terra Lycos."

Clearly, Olim now knows how to spell "relief."

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