Best Buy makes $121m bid for Napster

American electronics specialist Best Buy has come to the rescue of digital music service Napster, offering to buy the beleaguered subscription store in a $121m (£68m) deal.

The surprise announcement by the US giant, which is one of America's largest music retailers, came as the company said it plans to expand its online sales.

Brian Dunn, the president and chief operating officer of Best Buy, said buying Napster would give his company a "recognised platform" for moving into digital media distribution.

"Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want," he added.

Napster has around 700,000 paying subscribers globally, who are charged around £10 a month to be able to download any song in the company's extensive catalogue as long as they remain subscribed. Predictions that 'all-you-can-eat' subscriptions would become a popular way for fans to consume their music online have failed to materialise, however, and Napster executives have been publicly looking for a buyer for some time.

The cash deal values Napster stock at $2.65 per share – almost double the company's closing price on Friday – and represents a high premium on its business, which made $127m in revenues last year.

"We believe Best Buy will be an ideal partner for Napster and are very excited by the benefits this transaction delivers to our shareholders, partners and employees," said Chris Gorog, the chairman and chief executive of Napster.

The sale also marks the latest chapter in the turbulent history of the digital music company, which has traded hands several times in recent years. It first burst onto the scene in 1999 as the brainchild of Shawn Fanning, an 18-year-old student from Boston, who built a computer program which enabled people to share their music files with each other over the internet. Its ease of use helped Napster rocket in popularity, making it an immediate target for the music industry.

Threatened by the prospect of rampant digital piracy, it sued Napster for copyright infringement and forced the company to shut down in 2001. It entered bankruptcy a year later and eventually sold off its assets – including the brand name and logo – to software company Roxio.

However, since relaunching as a legitimate music download service in 2003, Los Angeles-based Napster has consistently struggled to meet expectations, particularly when faced with the dominance of Apple's iTunes download service.

Industry observers said they were surprised by the deal, and predicted it would be difficult for Best Buy to get maximum value out of the acquisition.

"I see why a music retailer would want an online play, but I don't usually think of Best Buy as a music retailer," said David Card, an analyst with Jupiter Research. "On-demand services are a fairly complicated product for a minimum-wage clerk to sell, but Best Buy has more skills than some."