CDNOW finds buyer at $3 per share

In a move that puts a value of approximately $117m on CDNOW, Bertelsmann AG will acquire the online retailer in a cash offer of $3 per share.

CDNOW has been struggling to find additional financial backing for several months. The deal with Betelsmann comes at the eleventh hour for CDNOW, who were in danger of running out of cash without further backing.

CDNOW will become a wholly-owned subsidiary of Bertelsmann e-Commerce Group, recently formed to implement Berlesmann's online strategy.

CDNOW will become Bertelsmann's primary engine for all music commerce across online, mobile and broadband platforms and evolving technologies such as digital downloading and streaming. CDNOW will be integrated as the music distribution platform into all Bertelsmann assets. In addition, CDNOW will work with GetMusic, an online music joint venture between Bertelsmann's BMG Entertainment and Universal Music Group, to feature GetMusic's content.

Jason Olim, CDNOW President, CEO and co-founder, said, ``Our agreement with Bertelsmann represents a successful conclusion to our extensive search for a merger partner. We believe our combination with Bertelsmann is the best outcome for our shareholders, employees and customers.''

Under the agreement, Bertelsmann will commence a tender offer for all CDNOW common stock for $3.00 per share in cash. Following the completion of the tender offer, Bertelsmann intends to consummate a second-step merger in which all remaining CDNOW shareholders will receive the same cash price paid in the tender offer. The transaction is expected to close during the fall of 2000.

The board of directors of CDNOW has unanimously approved the merger agreement and intends to recommend to the CDNOW shareholders that they tender their shares into the proposed offer from Bertelsmann. Jason Olim and Matthew Olim, co-founders of CDNOW, have agreed to tender their approximately 5.8 million shares (approximately 17% of the shares outstanding) into the offer.

In addition, Bertelsmann will advance to CDNOW financing of approximately $42 million to pay off existing loans and to fund CDNOW's ongoing operations until the close of the transaction.

CDNOW will continue to be headquartered in Fort Washington. The management team is expected to remain with the company. Jason Olim will report to Mr. Schmidt.

The tender offer is subject to customary closing conditions, including the tender of a majority of CDNOW's outstanding common stock on a fully diluted basis and obtaining necessary regulatory approvals.

CDNOW is one of the most well-known and regularly visited music destinations with 4 million customers and an average daily audience of over 700,000 people. CDNOW offers its users access to over 500,000 music and entertainment related products and 650,000 high-quality stereo sound samples, as well as daily news, features, guides to music genres, and exclusive interviews and reviews from the company's award-winning editorial staff.

With 25 million unique visitors per month, Bertelsmann is the global Internet leader among all media companies. The CDNOW acquisition follows a series of alliances and other initiatives that Bertelsmann has undertaken to expand its e-content, community and commerce capabilities. Earlier this year, Bertelsmann announced a strategic global alliance with America Online to expand the distribution of Bertelsmann's leading media content and e-commerce properties over AOL's interactive brands worldwide. On May 17, Bertelsmann announced a broad five-year strategic partnership with the newly formed Terra Lycos (formed from the merger of Terra Networks SA and Lycos, Inc.), under which Bertelsmann is guaranteed a preferred premier partner position for the distribution of its diversified media content and e-commerce offerings. With these strategic alliances, Bertelsmann's e-Commerce Group now has direct access to some 240 million customers.

07/20/00 SOURCE: Bertelsmann AG