Liquid Assets Up for Grabs?

Times are tough in the online audio delivery market, with long-established start-ups struggling to keep pace with competing formats from Microsoft as well as the ever pervasive MP3. Particularly hard hit has been Liquid Audio, which along with competitor Real Audio, has for the last few years attempted to create the de facto standard for online music commerce.

Steel Partners II, which owns approximately 8.2% of the common shares of Liquid Audio and has been publicly critical of company management, made an offer October 22 to purchase the remainder of Liquid for $3 per share, or almost $68 million in cash. As of last week, Liquid's shares were selling around the $2.60 mark, with a market capitalization of $57.2 million, a far cry from the company's peak in November 1999 when it was valued at over $1 billion.

Liquid Audio's response to the offer was less than enthusiastic: "The company will consider Steel Partner's offer at the company's next regularly scheduled board meeting."

In a letter dated October 25, addressed to Liquid's CEO Gerry Kearby, Steel says that it would like to meet with the company's board of directors "on or prior to the date of its next meeting to discuss our offer. If the board can demonstrate to us at such meeting that there is additional value inherent in the company that we do not currently recognize, we would consider increasing our offer. As we noted in our letter of October 22, 2001, time is of the essence, as the company's value diminishes daily. We look forward to meeting you and the board and hope this process moves forward quickly."

Musicmaker.com, one of Liquid's competitors which also owns 6.3% of the company, said it could mount a competing offer and suggested that the board call a meeting ahead of schedule. But Liquid says that under the company's bylaws, stockholders are not permitted to call special meetings, a position that Musicmaker disputes.

Musicmaker's James Mitarotonda comments, "It seems to me this is a very important matter. Somebody makes an offer for the company, you need to consider it quickly. It's possible we'll have a competing offer [to Steel's] as well."

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