Seattle-based Loudeye Corp. is to acquire OD2, the European music download service co-founded by British artist Peter Gabriel, for an amount estimated at $38.6 million in cash and stock.

Seattle-based Loudeye Corp. is to acquire OD2, the European music download service co-founded by British artist Peter Gabriel, for an amount estimated at $38.6 million in cash and stock.

The buyout comes as OD2 faces mounting competition in the legitimate European download market. In recent weeks, Napster and iTunes Music Store have opened for business, and Sony's Connect music service is expected to arrive in a matter of weeks.

As a result of the deal, Gabriel has resigned from the OD2 board and will no longer have any direct involvement with the company, Billboard.biz has learned. "He may well continue to provide some advice and background," says OD2 co-founder and CEO Charles Grimsdale. Gabriel held a stake of about 18% in OD2, and Grimsdale 15%.

According to a joint statement issued today, Loudeye will make an initial guaranteed payment in cash and stock of $20.7 million for OD2, which is based in Bristol, England. Loudeye has also agreed to pay an additional $17.5 million over the next 30 months.

Earlier this year, privately held OD2 hired investment bank Broadview International to explore funding options, including a potential sale.

The combined Loudeye/OD2 will have dozens of blue-chip digital media retail partners in Europe and North America, including Coca-Cola, MSN, and MTV. According to both firms, the combined library will grow to 1.3 million tracks -- licensed from the five majors and many independents -- as integration takes place in the coming months.

"The synergies between the two companies are very obvious and very logical," Loudeye president/CEO Jeff Cavins tells Billboard.biz. "Essentially, the OD2 brand and platform will become globalized. Loudeye's services and our anti-piracy protection services will become globalized, and effectively the two most successful B2B digital media companies in the world have come together to form now the single largest and most successful B2B company in the world."

European rivals Napster and iTunes each claim upwards of 700,000 licensed titles. The latter service launched last week with little independent-label content following a breakdown in negotiations with the European indie sector.

The Loudeye/OD2 venture will also seek to branch into mobile phone download services. Grimsdale says the deal will "enable us to offer a much broader range of new services to our current customers and extend our capabilities into such fast growing areas as the wireless arena."

Following the transaction, Grimsdale will become president/managing director of the combined company's international business operations, reporting to Cavins. Grimsdale has entered into a "multi-year" employment agreement.

Cavins says no jobs will be lost though the merger. "Actually, we're looking at expanding the company," he says. Loudeye claims about 75 full-time staffers; OD2 has about 80.

Launched in 2000, OD2 has offices in London, Paris, Cologne, Milan and Amsterdam. According to the statement, OD2's senior executive team has entered into employment agreements.