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.

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