Steel Partners offers to buy Liquid Audio
By Ben Berkowitz
LOS ANGELES, Oct 22 (Reuters) - A dissident investor in Liquid Audio Inc. <LQID.O> has offered to buy the struggling online music services firm for $67.8 million in cash, saying the step was needed to protect the remaining value of its investment in the face of poor management.
New York-based Steel Partners II, a privately held equity fund, made an unsolicited offer to pay $3 per share for Liquid Audio, a 27 percent premium over Liquid's closing price of $2.36 on Nasdaq on Monday.
"We believe that there is significant, but rapidly diminishing value inherent in the business and assets of Liquid Audio despite the company's poor operating performance and declining share price," Steel said in what was described as an open letter to the company's management.
A spokesman for Liquid Audio said the company's board of directors had not received the offer and was not yet treating it as a formal bid.
Steel, which was not immediately available for further comment, said it held about 8.2 percent of the common stock of Liquid Audio, up from 7.8 percent in September.
Monday's bid for the struggling online music came after the fund sent sent a letter to Liquid Audio on Sept. 10 demanding that management put the company up for sale. Steel called Liquid's strategy "doomed" in the face of competition from the likes of RealNetworks Inc. <RNWK.O> and Microsoft Corp. <MSFT.O>.
In a subsequent development, Musicmaker.com and some of its executives said they had acquired 6.3 percent of the company and would seek to acquire another 8.6 percent, taking their stake to 14.9 percent.
The group also said it would increase its ownership stake in Liquid to as much as 25 percent if the company dropped a shareholder rights plan, which attempts to prevent anyone from acquiring more than 15 percent of the company.
As of Monday's close, Liquid Audio had a market capitalization of $53.3 million. At its peak, in November 1999, the company was worth over $1 billion.
On Aug. 9, Liquid Audio reported second-quarter results, showing a decline in revenue to $1 million from $1.7 million in the prior quarter and $3.5 million in the year-earlier quarter.
The company's net loss widened to $14 million, or 62 cents per share, compared with $7.7 million, or 35 cents per share, in the year-earlier period.
At least three class action suits by shareholders are pending against the company, alleging that Liquid Audio and the underwriters of its initial public offering failed to disclose the exchange of certain shares in the IPO for commission payments.
In mid-July Liquid Audio severed ties with Liquid Audio Japan, its Tokyo-based licensee. The Japanese license was worth $11.6 million in revenue in 2000 to Liquid Audio.
Liquid Audio Japan had been dogged by the criminal investigation of a former executive and a collapse in its share price after a widely watched public offering on the Tokyo Stock Exchange's Mothers market in 2000.
Gerry Kearby, Liquid Audio's chief executive, told Reuters in July that it would take over a year to recoup the lost sales from the severing of ties to the Japanese company.
19:11 10-22-01 |
