Interesting article from CNNFN....
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CDnow, N2K to merge
Agreement struck after weeks of talks;
N2K shareholders offered premium
October 23, 1998: 10:51 a.m. ET
Online buying takes off - Oct. 9,1998
Amazon buys 'Net units - Aug. 4, 1998
N2K
CDnow
NEW YORK (CNNfn) - CDnow Inc. and N2K
Inc. will merge to form an online music retailer
with a customer base of 1.2 million consumers,
both Internet companies announced Friday.
The merger underscores the significant growth
that has characterized electronic commerce and
the importance that size will play to competitors
as the marketplace continues to mature.
"The stocks that have been successful are the
ones that have reached a very large scale which is
to say critical mass basically," said James Preissler, Internet analyst at PaineWebber. Online spending on books and music is
estimated to total $300 million in 1998, according
to Forrester Research. The market is projected to
grow to $4.5 billion by 2002. The CDnow/N2K combination comes during
a time when other online retailers are seeking out
merger partners because of the bleak conditions
for initial public offerings.
Ticketmaster Group and CitySearch Inc., a
provider of local entertainment guides, agreed in
August to merge. And Bertelsmann recently
agreed to pay $200 million for 50 percent of
barnesandnoble.com, the online unit of Barnes & Noble.
And the recent merger wave emphasizes the importance of marrying content with commerce and creating brand awareness, a strategy that has helped Amazon.com become the widely recognized leader of the sector.
Amazon.com shares have climbed while CDnow and N2K have slumped.
"Two companies have benefited from the
time-to-market advantage: Yahoo! and Amazon.
Those are the single success stories. Every single
day, it gets more and more competitive," Preissler
said. And the PaineWebber analyst believes that
other retailers likely will follow Barnes & Noble's
lead by seeking out strategic partners that are rich
with content.
"I think that is a very successful model for any
of these companies to follow," Preissler said.
CDnow, based in Jenkintown, Pa., has been in
talks for weeks with Manhattan-based N2K,
which operates under the Music Boulevard brand
name. The two Internet companies confirmed
talks back on Oct. 7.
The deal is structured for the two companies
to form a new publicly traded entity, initially
known as CDnow/N2K Inc. N2K shareholders
will receive 0.83 share in the new company for
each share they own while CDnow investors will
receive stock on a one-for-one basis.
The deal offers N2K shareholders a premium
of 42 percent. N2K shares (NTKI) rose 15/16,
or 17 percent, to 6-7/16 in early Friday trading.
CDnow stock (CDNW) lost 11/16, or 7 percent,
to 8-3/4 on the Nasdaq. As of Thursday, the combined company had
an equity market capitalization of about $250
million. The combined company will have
pro-forma sales of $75 million for the 12 months
ended Sept. 30. Jon Diamond, co-founder and vice chairman
of N2K, will be chairman of the new company.
Jason Olim, CDnow president and chief executive, will retain his title under the combined entity. A nine-member board will consist of four
directors appointed by CDnow and three from N2K -- one of whom is N2K Chairman and Chief Executive Larry Rosen. The merger is expected to be completed by early 1999, subject to approval by the shareholders of both companies, regulatory approval and other customary terms and
conditions. Separately, CDnow reported third-quarter
results that were slightly better than expected.
For the latest quarter, net losses totaled $12.7
million, or 74 cents a share, versus analysts'
consensus estimate of 77 cents. Sales jumped to $13.9 million.
A year earlier, CDnow posted a loss of $2.58
million, or 36 cents a share, on sales of just $3.9 million.
Meanwhile, N2K reported a wider-than-expected operating loss for the third quarter. Net loss totaled $24 million, or $1.69 a share,
compared with estimates of $1.28, according to
First Call. A year earlier, losses from continuing
operations totaled $6.9 million, or $2.25 a share. Sales rose from $3.6 million to $10.5 million.
-- by staff writer Robert Liu |
