Whenever a company announces publicly that it has hired an investment bank to explore strategic options, as Napster did today when it issued an advisory telling the world that it has commissioned UBS to investigate a potential sale of the company, it means one of two things.
It can mean that the company — Napster, in this instance — already has a pending acquisition offer in hand, but that it believes it might be able to extract a higher price, either from the first bidder or a new entrant, as a result of publicly proclaiming its exit-oriented intentions. The other possibility is that the company already has beaten the bushes and come up empty, unable to find a company willing to acquire it for whatever the asking price might be.
It’s a high-stakes move, telling the world that you’ve hired an investment bank to find a merger partner or acquirer. It’s risky because, if no buyer steps forward, Napster will be seen as a lame duck by existing and prospective customers, partners, suppliers, and investors.
For that reason, I will presume that Napster has a bid in hand, but wants to see whether it can do better by using a megaphone to broadcast its intentions to the wider world. That, too, could backfire. The potential acquirer might decide to walk away, or to look elsewhere. That’s not likely, but it has been known to happen.
Whatever the result of this process, it’s clear that Nokia’s recent acquisition of digital-music distributor Loudeye Corp. provoked hopes and dreams of a successful exit outcome at Napster. The question now is whether those hope and dreams will be fulfilled by a buyer.