Columbia House, CDNOW Nix Merger
Page 1 of 1
Instead, Columbia House co-owners Time Warner and Sony have agreed to invest $51 million in CDNOW, by providing an additional $21 million in cash as an equity investment and converting an existing $30 million short-term loan commitment into long-term convertible debt.
Jason Olim, CDNOW's president and chief executive officer said he was disappointed that the merger could not pull through, and that "the termination of the merger is the best move for CDNOW and its shareholders." He said the company has retained Allen & Co. to review its strategic opportunities.
During the fourth quarter CDNOW's revenues increased 154 percent from a year ago to a record $53.1 million, while traffic increased 181 percent. Also during the quarter, revenues from high-margin onsite advertising continued to increase to a new high of $3.4 million.
Despite these figures, Rob Martin, an analyst for Friedman, Billings & Ramsey said the move may not have been in Columbia House's best interest.
"The stock price didn't really move on the announcement and the retail sector was down and and out," Martin said.
Martin also predicted that CDNOW would run into a liquidity crisis at the end of the year if they did not come up with a way to raise additional capital.
"CDNOW is probably going to continue to look for an acquirer," he said. "I can't imagine they are going to stay independent for long. It's just a function now as to who would want to acquire an e-tail play given the current market environment."