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Liquid Audio Rejects Steel Partners, Amends Deal

Online music company Liquid Audio Inc. on Monday rejected a buyout offer from one of its investors, choosing instead to amend a current takeover agreement that has been criticized by some major shareholders.

Liquid Audio, based in Redwood, California, said the offer by Steel Partners II L.P. to buy it for $2.75 per share was inadequate. Steel Partners owns 9.1 percent of the company and has opposed Liquid Audio’s reverse-merger deal with Alliance Entertainment Corp.

Under the amended terms of its deal with privately held Alliance, Liquid Audio now will first buy 10 million of its shares – about 44 percent of its existing shares – for $3 each in a cash tender offer. It then will proceed with the reverse merger with Alliance – under which it will issue 36.3 million new shares to Alliance shareholders.

The new terms will diminish Liquid Audio’s public shares to about 12.75 million, and increase Alliance’s proposed stake in the company to 74 percent from the original 67 percent. Liquid Audio shares closed at $2.40 on Friday on Nasdaq.

In addition to the amended terms, Liquid Audio also amended provisions of its shareholder rights plan – a defense against unwanted takeovers – by lowering the threshold under which it is triggered. The rights plan now would be triggered if any party acquires 10 percent or more of the company’s stock, down from the previous trigger of 15 percent.

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