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CDNow, Columbia Set Merger

Music retailer CDNow on Tuesday agreed to merge with Columbia House, the jointly owned music house of Sony and Time Warner. The combinaton melds CDNow's powerful online brand with Columbia's huge 16 million base of traditional mail customers.

Two other major Internet deals mergers were also announced Tuesday:

  • Web advertising network DoubleClick said it's buying rival NetGravity in a deal for about $530 million. DoubleClick (DCLK) will pay $26.32 per share for San Mateo, Calif.-based NetGravity (NETG), based on DoubleClick's closing price Monday of 27 1/2. The stock-for-stock transaction builds on both companies' goals to offer broad infrastructure for ad management, data solutions and media sales for Internet publishers, advertisers and retailers.

    DoubleClick, the industry leader in global Internet ad solutions for marketers and Web publishers, is folding in NetGravity's interactive online advertising and direct marketing software business, the companies said.

  • Excite AtHome said it's buying Web retailing specialist IMall in a stock deal valued at about $425 million. The California-based broadband Internet specialist (ATHM) will issue 8.3 million shares for Atlanta-based IMall (IMAL), which provides e-commerce platforms for small and medium-sized businesses to sell their wares.

    In another e-commerce move, Excite AtHome inked a deal with First Data Corporation (FDC) unit First Data Merchant Services to offer merchants online commerce storefronts with transaction capabilities. Separately, Excite AtHome said it'll use content from CBS.MarketWatch.com on its network.


Separately, CDNow said its loss per share in the second quarter will be less than the 83-cent consensus estimate of analysts surveyed by First Call Corp. Revenue is expected to reach $34.5 million to $35 million, less than the company had hoped for as CDNow focused on integrating recently acquired N2K, an online music seller, into its operations.

Under the merger, each share of CDNow will be exchanged for one share in the new publicly traded company, a person familiar with the agreement said. Sony (SNE) and Time Warner (TWX) will each own 37 percent of the new entity and CDnow shareholders 26 percent.

The new company would have a market value of about $2 billion, the person said. CDNow's (CDNW) current value is about $670 million. Shares of CDNow rose 2 3/18, or 12 percent, to 22 1/4 Monday, up sharply from just 14 7/8 in mid-June.

The companies said that CDNow co-founders Jason and Matthew Olim, along with Chairman Jonathan Diamond, have agreed to vote their shares in favor of the deal. The trio controls one-quarter of CDNow's stock.

Last year CDNow, which is battling Amazon.com (AMZN) and others for supremacy in the online music industry, posted pro forma revenue of $98.5 million and is on pace to nearly double that pace in 1999.

Columbia House recorded sales of $1.4 billion. This year, it expects to derive $100 million in sales frm its own online business.

For CDNow, the marriage with Columbia House provides the company with a much-needed cash infusion to take on Amazon.com and other rivals. The online music seller was on track to burn up all its cash by the first quarter of 2000.

For their part, Sony and Time Warner are able to speed up their entry into the online music world. Columbia House has estimated that its 16 million customers spend an additional $2 billion annually on music outside their club memberships. Columbia House would like to get that money and draw in new customers as well via crossing selling and other marketing efforts with CDNow.

CDNow Columbia House will link their Web sites to a new site, where users can sample music, read reviews and make purchases. Columbia House will also continue to operate as a traditional club membership.

Written By Jeffry Bartash, CBS MarketWatch

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