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Vivendi Universal To Buy MP3.Com

French media giant Vivendi Universal said on Sunday it will buy its one-time legal foe MP3.com Inc. for about $372 million in hopes of bolstering its online music business.

MP3.com, 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 MP3.com 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 MP3.com’s board and has the support of the holders of more that 50 percent of the outstanding shares, calls for MP3.com’s holders to get $5 per share in cash or stock.

This represents a 66 percent 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.

MP3.com, 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 My.MP3.com 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 MP3.com, which the record labels and publishers argued violated copyright law.

In April 2000, a federal judge ruled against MP3.com, which 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 judgement 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 My.MP3.com in November.

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 an federal injunction against Napster that bars the swapping of copyrighted music files. But music stocks have yet to recover.

Vivendi said it will not issue new common shares but will use treasury shares for the share portion of the deal, which is still subject to regulatory approvals.

New-York traded Vivendi shares closed at $68.15 on Friday, above a year low of $54.30 and about 16 percent below its 52-week high of $80.94.

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