CDNow merger plan nixed
|
|
March 13, 2000: 10:51 a.m. ET
New deal calls for TW and Sony to commit $51M to Web music retailer
|
NEW YORK (CNNfn) - Time Warner Inc. and Sony Corp. on Monday scrapped plans to merge their joint-owned Columbia House music vending division with CDNow Inc., opting instead to commit $51 million to the Internet-based retailer.
The anticipated deal, agreed to in July 1999, called for Columbia House's parents, Sony (SNE: Research, Estimates) and Time (TWX: Research, Estimates), CNNfn's parent company, to own 37 percent of the newly formed company, with CDNow's existing shareholders to hold the remaining 26 percent.
Downshifting those plans, Time Warner and Sony now say they have agreed to buy 2.4 million shares of CDNow stock for $21 million cash and convert an existing $30 million short-term loan into long-term convertible debt.
"We are obviously disappointed that the merger originally envisioned last
July will not be completed. However, we feel the termination of the merger is the best move for CDNow and its shareholders," said Jason Olim, CDNow's president and chief executive officer.
In an interview with Reuters, Olim said the financial position of Columbia House was not what he first expected, leading to the merger's dissolution.
"When we entered (the deal) with Columbia House we had expected they would have adequate cash to fund our growth," he said. "All of us learned in the last 30 days that its cash flow position and debt level were not what we thought it would be."
Olim said the new relationship would allow CDNow to focus on its core business, and he added that the company is considering "other strategic opportunities."
In November 1999, the Federal Trade Commission (FTC) scrutinized the pending acquisition in an antitrust review. At that time, CDNow said it had been assured by both Time Warner and Sony that they remained committed to completing the merger.
"It's unfortunate that we could not proceed with our merger as originally
planned, but we expect our ongoing relationship to provide many benefits to both CDNow and to Columbia House and its parents," Scott Flander, chairman and CEO of Columbia House, said.
"This is a little surprising, because I know that some of the integration work had already taken place, so I was under the impression that they were on track to close," said Robert Martin, an analyst at Friedman Billings Ramsey.
At about 2 p.m. ET, CDNow (CDNW: Research, Estimates), based in Fort Washington, Pa., fell 15/16 to 8-1/27/16, Time Warner rose 2-1/4 to 87-1/4 and the American depositary receipts of Japanese electronics powerhouse Sony shed 9-1/8 to 234-5/8, falling as low as 217 amid a sell-off for many stocks in Tokyo.
|
|
|
|
CDNow
Columbia House
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
|
|