Best Buy Swallows Napster

Best Buy (BBY) has offered a 95% premium to acquire Napster (NAPS). The rationale offered in public is that this is an incredible fit with really great synergies. Best Buy has ruled the retail space for electronics and rightfully has developed respect from customers and investors. Napster well the stock has dropped dramatically but people still listen to music. They do lay claim to approximately 700,000 subscribers.

So from a marketing point of view this makes sense. No question.

But

Digital platforms such as Napster and other sites require huge Capex spending for R&D. This is an industry that eats its own babies for the smallest incremental advantage. As of their Q2 statements they have approximately $1.5 Billion in Cash and Short Term. Take out approx $120 million for the acquisition and the acquisition looks cheap. But maybe is like buying a cheap SUV the purchase price looks good but it will not sip lightly on the gas.

We are not used to seeing R&D costs on Best Buy’s statements. The management team is not used to managing R&D. The deal makes sense but is not a complete slam dunk. How much cash will be needed to stay in the game and be good at it?