Vivendi Universal to buy for $372 m.

CIOL Bureau
New Update

Derek Caney


NEW YORK: French media giant Vivendi Universal said on Sunday that it would

buy its one-time legal foe Inc. for about $372

million in hopes of bolstering its online music business.,

which operates a music download Web site and a series of other music services,

represents one possible springboard for the distribution of music over the

Internet for Vivendi Universal, which owns the world's largest record company,

Universal Music Group.

Major record companies have been looking for a way to replace the embattled

Napster song swapping service, with services of their own. Vivendi said

could become an integral part of the duet music subscription service it

plans to launch this summer with Sony Music Entertainment.

The deal, which has been approved by’s board and has
the support of the holders of more that 50 percent of the outstanding shares,

calls for's holders to get $5 per share in cash

or stock. This represents a 66 per cent premium over the company's closing

Nasdaq price of $3.01 on Friday, but well below its high of $105 on the day of

its initial public offering in July 1999., one of the best known Internet music sites,
offering free downloads of music files by largely unsigned and unknown bands,

had been battered in the past 16 months from a variety of factors including a

year-long legal battle with the five largest record labels in the world.

In January 2000, it began offering an "online music locker" called that allows users to store music digitally and later access via any

computer connected to the Internet. The service included a database of over

80,000 albums copied by, which the record labels

and publishers argued violated copyright law.


In April 2000, a federal judge ruled against This ultimately

led to a shutdown of the service and an estimated payout of over $160 million to

the five major record labels - Universal, Sony, Bertelsmann AG's BMG

Entertainment, AOL Time Warner Inc.'s Warner Music Group, and EMI Group Plc and

music publishers.

Ironically Vivendi's Universal Music refused to settle with the online music
firm and was ultimately rewarded with a judgment that was believed to be more

than what the other labels received in their settlements. When the smoke cleared

from the legal battle, the company had licensing deals with all five labels and

the music publishers that allowed the company to relaunch in


But by that time, Napster, which allows Internet users to copy digital music

files for free from other people's computers, in most cases, without permission

from labels, artists and publishers, cast a pall over competing stand-alone

Internet music companies as far as Wall Street was concerned.

The labels have since won federal injunction against Napster that bars the

swapping of copyrighted music files. But music stocks have yet to recover.

Vivendi said it would not issue new common shares but will use treasury shares

for the share portion of the deal, which is still subject to regulatory


(Additional reporting by Cyntia Barrera Diaz).


(C) Reuters Limited 2001.