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Vivendi Universal Acquires MP3.com

Vivendi Universal (www.umusic.com) announced on Sunday that it will acquire San Diego-based MP3.com ( www.mp3.com), for $372 million in a friendly, combined cash and stock transaction. Vivendi states that the acquisition will strongly reinforce Vivendi Universal's digital efforts in the strategic areas of online music, subscriptions, branding and technology.

MP3.com shareholders will be able to elect to receive $5 per share in cash, or a number of Vivendi Universal shares (in the form of American Depositary Receipts) having a value of $5. MP3.com's stock price closed at $3.01 per share on Friday, but market forces have practically brought the stock's price in line with the deal price. The last recorded trade price as of 12 p.m. PST was $4.86.

Vivendi Universal also struck a deal to acquire Emusic, an early pioneer in digital downloads, for $24.3 million in early April this year.

MP3.com has struggled financially after being ordered to pay hefty payments to the major labels for copyright infringement. The company recorded a charge of $170 million for copyright related litigation in the year 2000.

"This groundbreaking merger is a defining moment in the digital music era," said Michael Robertson, chairman and chief executive officer of MP3.com. "It brings together industry leading technology, brands, distribution and content. We will continue with our current MP3.com pursuits, but also work with our new partners to innovate subscription systems and music offerings that reach a global audience across many devices."

Some speculate that Universal let MP3.com off the hook easy in the settlement of its copyright infringement suit to help MP3.com avoid bankruptcy. The courts initially determined the MP3.com's financial obligation to be up to $25,000 per CD, which could have totaled as much as $250 million if the court had concurred with all 10,000 cases of copyright infringement that Universal alleged. Universal Music Group, however, made a deal with MP3.com to end the suit with a judgment amount of $53,400,000 and a right to exercise options to buy up to 5 percent of the company. MP3.com settled out of court with the four other major labels.

Last week, Rob Glaser, CEO of RealNetworks, and Edgar Bronfman, executive vice chairman of Vivendi Universal, spoke at a Congressional hearing looking into online music. Glaser demonstrated a simulated version of MusicNet, the music subscription platform formed as a joint venture between RealNetworks, AOL Time Warner, EMI, and Bertelsmann.

While offering no demonstration, Bronfman indicated that Universal and Sony's competing service, Duet, would be very similar - offering both downloadable and streaming music. Duet is expected to launch this summer.

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