Bertelsmann gobbles CDNow

German entertainment group Bertelsmann is to buy the financially troubled online music store CDNow for $117m.

The company had once been valued at more than $1bn.

It is a further sign that the first wave of dot.coms are finding it increasingly difficult to make it on their own.

CDNow is one of the online world's best known retail brands, but like many others it has seen its valuation plummet, with its shares now worth about 10% of their peak value of $22.6.

Bertelsmann's offer is to acquire the company by paying $3 per CDNow share.

It will give CDNow $42m to pay off loans and fund ongoing operations until the deal closes.

CDNow forever

The price being paid is at a very small premium to CDNow's current stock market value

Its shares closed on Wednesday at $2.90, just up from a year low of $2.

CDNow will continue to operate under its current brand name and become a subsidiary of Bertelsmann's e-commerce group, established earlier this year.

The merger agreement has been approved by CDNow's board who are recommending it to shareholders.

Co-founders Jason and Matthew Olim will sell their 17% holdings for about $17.4m.

Cashflow problems

The deal comes less than three months after a Mexican billionaire invested $52.8m in the music retailer.

That came after the loss-making company announced in March it was urgently looking for fresh funds to ensure that it could continue operations beyond this summer.

It was also seeking a merger partner after a proposed tie-up with Columbia House fell through.

Many analysts are predicting that a number of e-tailers may run out of money before they ever manage to become profitable - a viewpoint which was given added weight by the recent turnaround in soaring valuations.

CDNow had not expected to achieve profitability until the fourth quarter of 2002.