MP3 goes 'legit' with Vivendi buyout

The MP3 board and shareholders have already agreed the deal for a choice of cash, shares or ADRs (American depository receipts). The offer is worth $5 per share compared to MP3's IPO price of $28 and a 67 per cent premium to the $3.01 price on Friday.

Jean-Marie Messier, CEO of Vivendi, said in a statement: "This acquisition is an important step in Vivendi Universal becoming the world leader in online music distribution."

Last year, MP3 settled copyright suits with all of the five major record labels, including a payment of $53.4m to Vivendi Universal. The online music-sharing company has paid out $130m in the last year in copyright suits and still has several other court battles with small companies to settle.

Vivendi previously held five per cent of MP3. Last month Vivendi announced a music distribution deal with Yahoo! and in March it joined Sony to set up Duet, a rival to Napster.

Vivendi became the world's largest record company when it bought Seagram, owner of Universal Music Group, for $29bn last year.

Commenting on MP3's role within Vivendi, Messier stated: "[MP3.com's] engineering and digital expertise will be a tremendous advantage to for Vivendi Universal, especially in the digital distribution of all Vivendi Universal content and the creation of common technology platforms."

Vivendi's competition is also moving online. AOL Time Warner has an alliance with RealNetworks, Bertelsmann and EMI to create a pay service, MusicNet. And Bertelsman has signed up Napster to start a subscription-based service.