Koch Entertainment has signed a definitive agreement to purchase Navarre Entertainment Media for $6.5 million, the two companies confirmed. The deal, which was first tipped on Billboard.biz, is subject to customary closing conditions and is expected to be completed May 31.

"After twenty years of steady organic growth we are now making a significant acquisition that will further enhance our leadership position in independent music distribution," Koch Entertainment CEO Michael Koch said in a statement. "We are now the only true independent distributor with scale. Needless to say, we at Koch continue to believe in the future of music and music retail."

When it closes, it could place Koch Entertainment Distribution in second place in indie distribution marketshare. As of May 6, the Alternative Distribution Alliance, owned by the Warner Music Group, had a year-to-date market share of 3.3%, according to Nielsen SoundScan. According to the Koch press release, the deal would give Koch a combined marketshare of 2.7%-1.8% from Koch and .9% from Navarre, while RED, owned by Sony BMG Music Entertainment, had a market share of 2.6%. According a source close to the company, Koch Entertainment Distribution's net sales tally last year was $125 million, while Navarre's net sales figure was $55 million -- placing the combined annual revenue at $180 million. Navarre's roster of country and rock labels will complement KOCH's label portfolio, says Michael Koch. Product from the Navarre labels will be stored and shipped at Koch's Port Washington distribution facility.

Bob Freese, who heads up Navarre Entertainment Media, and Dale Libby who leads sales for the company, are expected to move to Koch when the acquisition is completed. Freese, who will report to Koch Entertainment Distribution president Michael Rosenberg, will continue to work with the Navarre labels as well as take on a business development role within Koch. Libby will report to Koch senior VP of sales Rob Scarcello. Several others from the Navarre sales team are expected to be retained by Koch.

Koch will finance the deal with cash reserves from parent company Entertainment One, according to Koch. In February, Koch's parent, Entertainment One, was acquired by Marwyn Investment Management LLP, a London-based private equity firm. At the time of the acquisition, Marwyn management said they intended to rapidly grow Entertainment One.

Meanwhile, Navarre, which began life as an independent music distributor, has diversified over the years into a wholesaler of computer software and video games. On March 31, founder Eric Paulson handed over the day-to-day reins of running Navarre to CEO Cary Deacon, who doesn't have music industry experience. At the time, Deacon said he considered music one of Navarre's main support beams, but others questioned if he would remain as committed to the music industry as Paulson did.

"The sale of Navarre Entertainment Media is a continuation of our strategy to assess all parts of the company that are in business sectors that are in decline to allow us to redeploy assets in stable and growth businesses, Deacon said in a statement. "We realized that consolidation was inevitable in the independent music sector in order to serve both, labels and their artists and the retail customers."

Navarre, a publicly traded company, said it "will retain certain trade receivables associated with the business, from which it expects to generate additional cash. Also, the company said it expects to recognize a gain from the transaction, the amount of which will depend on the closing balance sheet, and anticipates this transaction to be slightly accretive on a go forward basis."

NASDAQ reacted with indifference to the sale, as Navarre's closing share price was $4.26, down six cents, but Entertainment One, which is listed on the London Stock Exchange's AIM market, traded up 1.00 pound to 111.50 pounds.