Liquid Audio Considering Buyout Offer

Online music services firm Liquid Audio Inc. said on Wednesday it would consider an unsolicited offer from a dissident investor to buy the company for almost $68 million in cash, setting the stage for a potential auction of the struggling firm.

The Redwood City, California-based company said its board would consider an unsolicited offer from Steel Partners II to buy the company for $3 per share after the equity fund complained that the company’s management was following a failing strategy in the face of larger competitors.

Based on Tuesday’s closing price of $2.55, the cash offer represented a premium of almost 18 percent to the market value of the company. Liquid Audio shares closed up 3 cents at $2.58 in afternoon trade on Nasdaq. Their 52-week high is $6.75 and their 52-week low is $1.65.

Musicmaker.com Inc., a competing online music firm, which owns 6.3 percent of the company in conjunction with several executives, said it could mount a competing offer for Liquid Audio and renewed a call for the board to meet quickly.

Liquid Audio did not say when its board meeting would take place. A call to a spokeswoman for comment was not immediately returned. A call to the managing partner of Steel Partners was also not immediately returned.

Liquid Audio also said it had rejected a request by Musicmaker to hold a special board meeting in November, saying the company’s bylaws did not allow stockholders to call such meetings.

“We think that shareholders can call a special shareholder meeting under the bylaws,” said James Mitarotonda, president and chief executive of Musicmaker, which was delisted from the Nasdaq this year.

Mitarotonda said he was also unhappy that Liquid Audio had chosen to consider Steel Partners’ offer at its next board meeting, rather than immediately.

“It seems to me this is a very important matter – somebody makes an offer for the company, you need to consider it quickly,” he said.

Mitarotonda declined to comment specifically on Steel’s offer, but said, “it’s possible we’ll have a competing offer as well.”

Steel’s offer on Monday came in a critical, open letter that said Liquid Audio had “diminishing value” and said the fund was ready to begin due diligence immediately.

On Sept. 10, Steel had issued a letter demanding the management of Liquid Audio put the company up for sale.

Steel owns 8.2 percent of Liquid, which at its peak in November 1999 had a market capitalization of over $1 billion.

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