German media conglomerate Bertelsmann AG has announced plans to acquire troubled Internet music retailer CDnow, Inc. in an all-cash deal valued at $117 million. Bertelsmann will pay $3 per share in the company, which traded as high as $35.50 in April 1998.

In a Wednesday (7/20) announcement, Bertelsmann said that it will also pay off $42 million of CDnow’s debt, and will also fund the company’s operations through the merger process. The deal is expected to close this fall.

CDnow’s stock price--which had declined precipitously in the preceding year--collapsed after a planned merger with the Time-Warner-owned CD club Columbia House fell through in March. The price fell even further after the company’s accounting firm reported that the company might not be able to make its debt payments after September.

The company attempted to find another merger partner ever since. Early in June, the company announced that a merger partner had been found and details would be announced in a matter of weeks. Later that month, the company announced plans to cut its operating costs and closed down its London offices.

Bertelsmann is paying a slight premium above CDnow’s stock price of 2 7/8 at the close of trading on Tuesday (7/19). According to Reuters, the company’s two founding partners, brothers Jason and Matthew Olim, will share $17.4 million as a result of the deal; their 17% stake in the company was worth as much as $203 million when the stock price was at its high.

Despite the company’s financial troubles, CDnow has been a top brand name in the internet music retailing business. The company claims that it has more than 4 million customers and that its website attracts an average more than 700,000 visitors each day. Despite revenues of $43.6 million in the first quarter, however, the company reported losses of $28.2 million for the period.

Bertelsmann said that CDnow will become a wholly-owned subsidiary of Bertelsmann e-Commerce Group, which was established earlier this year to house the company’s “e-content, community and commerce business.”

CDnow will continue to operate under its brand name and will remain in its current base of Ft. Washington, Pa. The site “will also become Bertelsmann’s primary engine for all music commerce across online, mobile and broadband platforms and evolving technologies such as digital downloading and streaming,” Bertelsmann’s statement said.

Bertelsmann plans to use CDnow as the company’s platform to distribute all of the company’s music. Content from GetMusic, an online music joint venture between Universal Music Group Bertelsmann-owned BMG Entertainment, will be featured on CDnow.

CDnow claims to offer over 500,000 music- and entertainment-related products and 650,000 stereo sound samples, as well as daily news, features, guides to music genres, and reviews.

Bertelsmann claims to attract 25 million unique visitors per month to its various websites, and claims to be the leading Internet media company in the world. Earlier this year, the company entered an alliance with America Online to expand its content distribution on the Internet.