Napster a Takeover Target?

By Richard Menta 7/21/08

According to Bloomberg Napster may be a takeover target. The reason is because the the company's share price has dropped so low its stock valuation right now is actually lower than the amount of cash it has on hands. The value of the stock as of Thursday is $52.1 million, considerably less than the $69.8 million the company has in cash. This means that Napster is worth more dead than alive.

"The valuation's absolutely dirt cheap", said Munder Capital Management portfolio manager Ken Smith. "Napster may be an attractive target for a buyer like JDS Capital Management Inc., the New York hedge fund that owns digital-music retailer JDS already bought 1 million shares of Napster in the first quarter showing that the group is aware of the valuation.

As revenue rose over the past year Napster CEO Christopher Gorog fueled the cash growth by slashing sales and marketing expenses by 90%. Meanwhile, investors say that lack of confidence in the company's governance has helped drive share prices down setting the stage for the present scenario. While there is no real growth, Napster has managed to keep its user base steady. Still, Napster will continue to be dwarfed by iTunes and even Real's Rhapsody.

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