Is It (the) Best Buy for Napster?

In a previous post we were telling you about the Napster’s ambition to stay public (read – out for sale). Well, now they got their wish.

Richfield-based Best Buy (NYSE: BBY) announced today the purchase of Los Angeles-based Napster (Nasdaq: NAPS) for $121 million through a merger agreement, under which Best Buy will acquire all outstanding Napster shares at a price of $2.65 per share in cash (about double Napster's closing price last Friday). The proposal is awaiting approval, and is expected to close during the fourth quarter.

The promotion of a rental music service proved quite costly. When your marketing expenses rise to 85 per cent of your total spending sometimes, it’s no wonder you’re not money-spinning business. That was the case of Napster.

Thus, this acquisition may come as a gain for Napster considering that last month the company reported a loss of $4.4 million, or 10 cents per share, as revenue dropped 6 percent. According to experts its situation could easily aggravate due to the increase in popularity of Apple Inc.'s iTunes.

"This is, in our view, the optimal outcome for Napster, a music brand and online service that independently might otherwise have dissipated," BMO Capital Markets analyst Leland Westerfeld declared to investors in a research note.

Reportedly, Napster has around 700,000 subscribers to its Web-based digital entertainment services.
Best Buy recently threw in $1bn into a joint venture with Carphone Warehouse to develop the mobile phone chain into consumer electronics.

Napster shares went up to $1.17, or 86 percent, to $2.53. For the time being, Best Buy shares fell 79 cents, or 1.8 percent, to $43.70.