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Monday, September 15, 2008, 06:35 am PT (09:35 am ET)

Best Buy to acquire Napster for $121 million

Best Buy said Monday it has agreed to purchase Napster Inc. for $121 million as part of a bid to accelerate growth in the emerging industry of digital entertainment and leverage its relationships with content studios.

The deal, which values Napster at $2.65 per share, is expected to close during the fourth calendar quarter and includes the service operator's approximately 700,000 digital entertainment subscribers, its Web-based customer service platform, and mobile capabilities.

Best Buy said intends to use Napster’s assets to reach new customers with an enhanced experience for exploring and selecting music and other digital entertainment products over an increasing array of devices.

"This transaction offers Best Buy a recognized platform for enhancing our capabilities in the digital media space and building new, recurring relationships with customers," said Brian Dunn, President and COO of Best Buy. "Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want."

In May, Napster openly challenged Apple's iTunes Store when it launched an a la carte download service filled with DRM-free tracks that are compatible with both the iPod and iPhone. The service offered 6 million songs and was billed as "more than 50 percent larger than any other MP3 store" and not only the "largest major label MP3 catalog in the industry, but also the largest library of independent music available anywhere."

Best Buy, which partners with Apple on the sale of Macs, iPods and iPhones, said the addition of Napster will help it build stronger relationships with customers, expand the number of subscribers to Napster's service, and capture recurring revenue by offering ongoing value over a mobile digital platform.

Napster has approximately 140 employees, with its headquarters in Los Angeles. At this time, Best Buy does not plan to relocate Napster’s headquarters or to make significant changes in personnel.