CD Warehouse, CD Plus Announce Merger

Oklahoma City-based CD Warehouse, Inc.(Nasdaq: CDWI) and Canadian music retailer CD Plus.com Ltd. announced today that they have signed a letter of intent to merge and create the fourth-largest music retailer in North America.

CD Warehouse will bring 340 CD Warehouse, Disc Go Round, CD Exchange and Music Reader stores in 40 states, Canada, England, France, Guatemala and Venezuela to the merger table, while CD Plus.com will bring 150 CD Plus, AVE Entertainment, Big K and Urban Sound Exchange stores in nine Canadian provinces and the Yukon Territories to the deal.

The companies say that the 220 owned and 274 franchised stores have combined sales of approximately $165 million (US$). The share exchange ratio and other financial details of the deal will be finalized in a definitive merger agreement, which is subject to shareholder and regulatory approval. CD Plus.com is traded on the Toronto Stock Exchange (CDW).

CD Warehouse CEO Jerry Grizzle said that the deal will help boost sales of second-hand music, which is an important niche for the company. He also expects the deal to give the company an international presence that it can build upon.

“By combining the operations of our two strong companies, this gives us the opportunity to further expand our strength in the pre-owned music arena,” said Grizzle. “CD Plus also has considerable experience in operating internationally, which should be a tremendous benefit to our continued growth.”

Both Online and Off

Up against the likes of Amazon.com, CD Now and other online music retailers, the two companies obviously saw the benefits of working together to increase their e-commerce operations. They will link their Web sites, which have become an increasingly important factor in boosting sales for both.

CD Warehouse says its patent-pending e-commerce model of routing an incoming order to the brick-and-mortar store closest to the customer separates it from its online competitors.

“Our business model is strategically different from other online competitors,” said Grizzle. “First, there are no added inventory costs for either pre-owned or new titles. Secondly, because the closest local store ships the product, the customer receives their order quickly. Finally, the Web site reflects the pre-owned inventory from our stores throughout the country, giving the consumer a wider selection of titles available than what would be available from a single store.”

CD Plus.com claims to be the first online music retailer in Canada. The company was founded in 1992 and launched its Internet site in 1996.