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"Our agreement with Bertelsmann represents a successful conclusion to our extensive search for a merger partner."
—Jason Olim, President/CEO, CDNow.
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BERTELSMANN TO BUY CDNOW
FOR $117 MILLION

Netco To Keep Its Name, Will Become "Primary Engine" For Bertelsmann’s Online Music Needs
Bertelsmann has inked a definitive merger agreement to purchase troubled online music retailer CDNow for approximately $117 million, the companies said Thursday.

The big German media outfit will pay about $117 million, or approximately $3 a share, and 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, but is nearly 90% off its 52-week high of $21.56, trading at $2.875, down 12.5 cents, on Wednesday'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 [CDNow's] 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.

"Our agreement with Bertelsmann represents a successful conclusion to our extensive search for a merger partner," said jason olim',390,400);">jason olim',390,400);">Jason Olim, President/CEO, CDNow. "We believe our combination with Bertelsmann is the best outcome for our shareholders, employees and customers. This transaction allows CDNow to fulfill its vision of providing music fans with the ultimate music experience… [CDNow] will continue to provide music fans with a digital connection to the world of music through music products, information, entertainment and community."

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 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 Andreas Schmidt, President/CEO, BeCG.

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 Seagram and Vivendi.

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

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