Chicago (IL) – In a rare scenario, Best Buy decided to substantially drop the offered price for music download service Napster and got Napster to agree to an acquisition price that was below the company’s first offer, a filing with the Securities and Exchange Commission reveals. Meanwhile, Best Buy launched a tender offer to acquire all outstanding shares of Napster.
It wasn’t particularly a secret that Napster has been looking for a buyer at least since 2006. In fact, the story was so old that very few paid attention to it lately. A recent SEC filing reveals the negotiation process with Best Buy behind closed and provides some evidence that Napster wasn’t an easy sale for UBS Securities, which was contracted by Napster to find a buyer for the company. Actually, Best Buy may have been the only company left willing to purchase the once famous music service that is under growing competitive pressure and confronted with the problem of a declining subscriber base.
Negotiations apparently began in January of this year when Best Buy began showing interest in possibly acquiring the company. Best Buy has been a stakeholder in Napster since June 2004 when it acquired 1,099,626 shares as part of a “strategic marketing agreement” under which Best Buy agreed to feature Napster as its “preferred co-branded digital music service offering.” The agreement expired in June 2006, but Best Buy decided to keep its shares.
On June 5, 2008 Napster received a non-binding proposal letter from Best Buy, confirming its interest to acquire the company for $2.75 to $3.50 per share - subject to the usual acquisition process, which includes due diligence and the approval of the proposed transaction by Best Buy’s and Napster’s board of directors. Following the due diligence, Best Buy lowered its offer price to $2.50 per share, translating into a proposed purchase price reduction of almost $12 million on the low-end and almost $48 million on the high end. Napster’s advisors at UBS said that they were not aware of “any similar or more favorable acquisitions available to Napster in the near term,” which prompted Napster to propose $3.00 as an acquisition price on July 22.
Best Buy reiterated its decision to drop the offer price from $2.75 per Share to $2.50 per share on August 19. It appears that Napster wasn’t happy with the $2.50 offer, but convinced Best Buy to remain on the negotiation table by agreeing that the offer price would not exceed $2.65. Best Buy ended up getting Napster for $2.65 per share in a deal valued at about $121 million. The acquisition was announced on September 15. And even if Best Buy was able to drop its offer price to below its initial offer, the paid price still reflects a 95% premium over the stock value at the time.
While Napster did not get as much as it wanted initially, it seems the company may have been lucky in the end, given the belief of its board of directors “that it was highly unlikely there would be another party interested in acquiring the Company at a comparable or better price and that a transaction with other potential acquirers would be less certain to be completed.”
Napster’s first row of executives will also cash in on the deal. According to the SEC filing, the shares held by chief executive officer William Gorog are worth $8.20 million, the shares of president Bradford Duea $1.65 million, the shares of chief operating officer Christopher Allen $1.15 million and the shares of chief financial officer Suzanne Colvin about $701,000 (all numbers exclude any non-vested stock options.)
Best Buy said that it has launched a tender offer to purchase all 46,822,985 outstanding shares, excluding its own 1,099,626 shares, as part of a tender offer, which will expire on October 24, 2008 at midnight.
It wasn’t particularly a secret that Napster has been looking for a buyer at least since 2006. In fact, the story was so old that very few paid attention to it lately. A recent SEC filing reveals the negotiation process with Best Buy behind closed and provides some evidence that Napster wasn’t an easy sale for UBS Securities, which was contracted by Napster to find a buyer for the company. Actually, Best Buy may have been the only company left willing to purchase the once famous music service that is under growing competitive pressure and confronted with the problem of a declining subscriber base.
Negotiations apparently began in January of this year when Best Buy began showing interest in possibly acquiring the company. Best Buy has been a stakeholder in Napster since June 2004 when it acquired 1,099,626 shares as part of a “strategic marketing agreement” under which Best Buy agreed to feature Napster as its “preferred co-branded digital music service offering.” The agreement expired in June 2006, but Best Buy decided to keep its shares.
On June 5, 2008 Napster received a non-binding proposal letter from Best Buy, confirming its interest to acquire the company for $2.75 to $3.50 per share - subject to the usual acquisition process, which includes due diligence and the approval of the proposed transaction by Best Buy’s and Napster’s board of directors. Following the due diligence, Best Buy lowered its offer price to $2.50 per share, translating into a proposed purchase price reduction of almost $12 million on the low-end and almost $48 million on the high end. Napster’s advisors at UBS said that they were not aware of “any similar or more favorable acquisitions available to Napster in the near term,” which prompted Napster to propose $3.00 as an acquisition price on July 22.
Best Buy reiterated its decision to drop the offer price from $2.75 per Share to $2.50 per share on August 19. It appears that Napster wasn’t happy with the $2.50 offer, but convinced Best Buy to remain on the negotiation table by agreeing that the offer price would not exceed $2.65. Best Buy ended up getting Napster for $2.65 per share in a deal valued at about $121 million. The acquisition was announced on September 15. And even if Best Buy was able to drop its offer price to below its initial offer, the paid price still reflects a 95% premium over the stock value at the time.
While Napster did not get as much as it wanted initially, it seems the company may have been lucky in the end, given the belief of its board of directors “that it was highly unlikely there would be another party interested in acquiring the Company at a comparable or better price and that a transaction with other potential acquirers would be less certain to be completed.”
Napster’s first row of executives will also cash in on the deal. According to the SEC filing, the shares held by chief executive officer William Gorog are worth $8.20 million, the shares of president Bradford Duea $1.65 million, the shares of chief operating officer Christopher Allen $1.15 million and the shares of chief financial officer Suzanne Colvin about $701,000 (all numbers exclude any non-vested stock options.)
Best Buy said that it has launched a tender offer to purchase all 46,822,985 outstanding shares, excluding its own 1,099,626 shares, as part of a tender offer, which will expire on October 24, 2008 at midnight.