RealTime IT News

CDNow, N2K Complete Merger

Joining forces to challenge e-commerce Goliath Amazon.com, dueling music e-tailers CDnow and N2K Wednesday finalized their $522 million merger.

The new entity will be known as CDnow/N2K. The companies first announced the deal last October.

N2K shareholders will get 0.83 shares of common stock for every N2K share held and CDnow shareholders will receive one share of common stock in the new company, in a tax-free exchange. Stocks for both concerns have lagged behind their Internet brethren. At mid-day CDnow was up 25 cents to $18.063 while N2K was up 56.3 cents to $14.875.

The new music merchandising site is expected to debut in May. It will be headed by Jon Diamond, who will be the merged entity's chairman. Diamond was formerly the co-founder and vice chair of N2K. CDnow co-founder Jason Olim is slated to retain his president and chief executive officer title. N2K co-founder Larry Rosen will take a seat on the company's board of directors.

Olim is quoted as saying the pairing will save the company $20 million in 1999 and an estimated $35 million next year. Reductions in staff from both companies have resulted. Several key N2K executives have split from the company, including N2K's former chief technology officer.

Taking on former bookseller-turned e-commerce powerhouse Amazon.com will prove to be forminable. According to Amazon's figures, the Seattle-based company, which has only been retailing music products for the past six months, sold more than $50 million in CDs during the second half of last year. CDnow's total revenue for 1998 were reported at $56 million. Both CDnow and N2K have online partnerships with the major portals, including America Online, Yahoo!, Excite and Geocities.

The online music retail market is expected to continue heating up. Analysts at Forrester Research estimate the online music sales will soar to $4.5 billion by 2002.

"The unity of the two companies is powerful on all levels: strategic, tactical and financial...we receive a ubiquitous position online...the combined company will enjoy broad leadership in the most popular musical genres...perhaps most importantly, the merger creates opportunities for major cost reductions and new efficiencies that will be of benefit to our shareholders," Olim said.