In a bid to grab a larger share of the growing digital mobile music market, Nokia, the world's largest handset maker said it has agreed to buy US-based digital music distributor Loudeye for $60 million (Euro 80 million).
Nokia said it had offered $4.50 per share in cash to Loudeye shareholders, a premium of more than 150 per cent over the shares' closing price on Monday. Shares in Loudeye surged at the start of trade on Tuesday and were up 146 per cent at $4.36.
Nokia has previously cooperated with Loudeye in enabling mobile operators to provide a music download service over mobile phones such as Nokia's high-end N91 handset.
The company now aims to provide a music download service under its own brand sometime in 2007, possibly putting it in direct competition with its own operator customers.
"By acquiring Loudeye, Nokia can offer consumers a comprehensive mobile music experience, including devices, applications and the ability to purchase digital music," the Nokia said.
Nokia has stepped up a gear on the acquisition trail after its new Chief Executive Olli-Pekka Kallasvuo took over in June. It has agreed to spin off its mobile networks infrastructure unit and dropped a planned phone making venture with Sanyo.
Kallasvuo has said Nokia would set to strengthen its multimedia and enterprise units through acquisitions.
"Perhaps we are seeing a change of strategy by Nokia as it becomes more predatory acquiring companies to support its future objectives," Collins Consulting wireless telecoms consultant Ben Wood said.
Handset makers see digital music as one of the key drivers for selling more expensive new phones, as they try to hold up their average selling prices despite surging demand for cheap phones on emerging markets.
"Music is now the number one service for selling advanced mobile phones - it has been cameras, and in the future it might be television - but in 2006 music has become the service phone makers have been concentrating on," FIM Securities analyst Erik Sucksdorff said.
The world's fourth largest handset maker Sony Ericsson has benefited in recent quarters from strong sales of a line-up of Walkman music-playing handsets.
The company is planning to compete head to head with Apple Computer for control of the global market for music downloads, said Anssi Vanjoki, executive vice-president of Nokia Multimedia.
The world's largest mobile phone maker will set up a rival to Apple's iTunes online music store in 2007 and also hopes its music-enabled phones will eventually depose Apples iPod digital music player, the Financial Times quoted Vanjoki as saying.
'We want to be a global leader in mobile music experiences, and if that means operating in areas where Apple is, then so be it,' he told the newspaper.
The new service will allow consumers to purchase music from an individually branded internet site, download it to their mobile phone and pay for it on their phone bill.
It will be possible to play downloaded songs on all digital music players.