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RealTime IT News

Blue Light Special on CDNow

Well folks, it finally happened, albeit anticlimactically. CDNow found a dance partner with Bertelsmann AG. The German media giant dictated terms to the tune of $117 million in cash and will assume an additional $42 million in CDNow debt so the music e-tailer can pay the light bills until the acquisition is finalized.

The buy works out to $3 a share or about fair market value for the struggling dot-com. With only a handful of day traders left to sift through the rubble, there was no surprise that investors gave a collective yawn to the deal, as shares nudged 1/32 higher on twenty times average daily volume.

Co-founders Jason and Matthew Olim will sell their collective 6 million shares as part of the deal. That means, instead of two newly minted gazillionaires, the brothers will have to settle for about $18 million in cash between them. Not bad work if you can get it.

After the dust settles, CDNow will continue operating under its current name, while occupying a spot on Bertelsmann's fireplace mantle as a wholly-owned subsidiary of its e-commerce group. But perhaps more importantly, Bertelsmann puts to rest a series of embarrassing missteps and eroding fortunes for the Internet graybeard.

Earlier this year, CDNow started a highly publicized search for a buyer, following scrapped negotiations with Columbia House, jointly owned by Time Warner and Sony . The two powerhouses decided to invest $20 million in cash to keep CDNow afloat, in exchange for an 8% stake in the company. In hindsight, it proved a poor investment, resulting in a paper loss of two-thirds the original investment in just over four months.

In May, CDNow managed to hook up with Carlos Slim Helu, convincing Mexico's Mr. Moneybags to part with $50 million in exchange for a 10% stake in the music seller. The billionaire bought some 3 million shares of stock at nearly $17 apiece. Same result, different story. Just two months removed, Slim's paper loss is somewhere in the neighborhood of 80% of his original investment; which, incidentally, is about how much most plain vanilla e-tailers are off of their 52-week highs. So what's $40 million between friends?

In March of this year, when CDNow for the first time slipped into the single digits, and the company had just begun its search for a sugar daddy, Jason Olim proclaimed the company "a bargain." I suppose yesterday's sale at a paltry $3 a pop makes it look like a blue light special.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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