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Nokia buys into mobile music with $60M Loudeye purchase

ESPOO, Finland—Nokia Corp. is buying its way onto the mobile music playground, agreeing to acquire distributor Loudeye Corp. for about $60 million.

The handset manufacturer said it will pay $4.50 per share in cash to shareholders of Loudeye, which operates 60 digital music services in more than 20 countries. The price marks a premium of more than 150 percent over the shares’ closing price Monday.

Nokia looks to square off against Apple Computer Inc.’s iTunes as well as new services from Verizon Wireless, Sprint Nextel Corp. and Microsoft Corp., among others. The company said it will market a mobile music download service as well as devices and applications to support the offering.

Loudeye, which claims 130 employees, made substantial headway in Europe several years ago with online music distribution service OD2. And while the company has continued to gain traction in other markets—including South America, Australia and South Africa—its European business has faltered, losing clients including Virgin Mobile Group plc and Coca-Cola to competing distributors.

“Loudeye brings a number of key assets to Nokia, including a great team of people, a substantial content catalogue and a robust service platform that will help us to achieve this objective,” said Anssi Vanjoki, Nokia’s general manager of multimedia. “With this acquisition, we aim to deliver that vision and a comprehensive music experience to Nokia device owners during 2007.”

The deal is scheduled to close in the fourth quarter, pending approval of Loudeye’s stockholders and regulatory agencies.

The acquisition not only will give Loudeye a high-profile partner with deep pockets, it will allow Nokia to leverage its position as a leading mobile music player. Nokia sold 15 million music-enabled devices in the second quarter, nearly doubling the 8.1 million iPods Apple sold during the some period.

“We think this bolt-on acquisition makes sense,” opined UBS Investment Research, “given Nokia is now the largest manufacturer of digital music player devices, which are becoming increasingly pervasive, as well as the trend towards higher software content in mobile devices. Further, the acquisition gives Nokia a foothold in another part of the foodchain (i.e. content delivery), which we believe will be critical longer-term.”

Shares of Loudeye surged on the news, gaining 145 percent to $4.33 per share. Shares of Nokia were essentially unchanged, losing 3 cents and trading at $19.53 per share.

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