Liquid Audio Shareholders Consider Liquidation
September 25, 2002
Liquid Audio Shareholders Consider Liquidation
By Gretchen Hyman
siliconvalley.internet.com
Inveterate music company Liquid Audio, Inc.(Quote, Company Info, News) may be facing the end of its six-year run as one of the Internet's foremost digital music distribution sites, sources said Wednesday.
The company has recently hit dry ground, lost a significant number of its music followers over the years, and ended up in the midst of a heated proxy battle between company shareholders and executives who are at odds over the company's future and its estimated $80 million in liquid assets.
Founded in 1996, Liquid Audio served as a secure, copyright-friendly distribution network for record labels and artists. Through its fee-based download service, songs could be downloaded onto a Liquid Audio player without being copied. Liquid Audio's music service was a mainstay for sites like Amazon.com (Quote, Company Info, News), CDNow.com, and Sony Music Club.
But the music company found that its initial popularity was short-lived as peer-to-peer networks overtook the online music space by offering more enticing, free download options.
Additionally, like its successors Listen.com or Pressplay, Liquid Audio suffered under restrictions and licensing barriers from the major record labels that prevented it from being able to fully compete with the more abundant selections, albeit illegal, peer-to-peer networks were offering.
In what promises to be a major turning point for the company, Thursday's shareholder meeting in Redwood City is expected to mark a significant shift in the company's direction and perhaps its demise.
Angry shareholders who have lost millions in devalued stock over the years are expected to vote to oust Liquid Audio President and CEO Gerald Kearby and Raymond Doig from their seats on the board, a pivotal move that might lead to closure of the company and the distribution of remaining assets to shareholders.
Kearby and Doig are two key backers of a proposed merger with Alliance Entertainment Corp., a deal that could revive Liquid Audio's shrinking revenue and give it a second chance in the digital music space.
According to the Liquid Audio spokesperson, the merger proposal has been filed with the Securities and Exchange Commission and is waiting to be deemed effective, which could occur in the coming weeks.
However, the majority of Liquid Audio's shareholders who fear they might be left holding the bag if Alliance Entertainment fails to breathe life into the failing company, are pushing for dissident shareholders MM Companies, Inc. and Steel Partners to take over the company, replace the two vacant seats with two members of their own team, and initiate a liquidation.
The two companies own a combined 16 percent of Liquid Audio's stock and have been adamantly opposed to the Alliance merger, which would give Alliance 74 percent control of Liquid Audio.
Liquid Audio would retain only 26 percent control.
Dolphin Limited Partnership, which owns just under 4 percent of outstanding Liquid audio shares, is another outspoken opponent of the merger.
"Presently, we do not consider the contemplated merger as a viable alternative," stated a letter issued by Donald T. Netter, senior managing director of Dolphin Limited to Liquid Audio executives. "We believe that it is past time for the company to stop squandering shareholder assets and let the shareholders decide the company's direction and leadership at the upcoming meetings."
If the merger is approved, Alliance stockholders would receive approximately 46.2 million newly issued shares of Liquid Audio common stock, and Liquid Audio would assume all outstanding stock options and warrants to purchase shares of Alliance Entertainment.
"We've been in the digital space for sometime," said a Liquid Audio spokesperson. "And everything has happened for us as planned, it just happened later than we expected. We need to buy time for this business to take off and with Alliance's steady revenue, we could move forward."
Headquartered in Coral Springs, Fla., Alliance Entertainment distributes video games, CDs, and DVDs.
"This merger will firmly position the combined company to become a leading provider of commerce solutions for entertainment media through physical and digital channels," said Eric Weisman, Alliance president and CEO in a prepared statement.
"Combining the two businesses enables us to provide a unique solution for both content owners and retailers of home entertainment products as we see their digital and physical delivery needs converging," Weisman continued.
Liquid Audio's annual shareholder meeting is scheduled for September 26, 2002, in Redwood City, California. |
