Liquid Audio ends merger plan

[Fairweather]

Those trying to shut down Liquid Audio scored another win in their battle Monday.
Bowing to shareholders, the company said it's ending a proposed merger agreement with Alliance Entertainment.

The companies said they mutually agreed to end the merger plan after a large number of Liquid Audio shareholders opposed the proposal. However, they said that both management teams still support "strategic aspects" of the plan, which was struck in June.

Dissident shareholders have been fighting to shut down Liquid Audio and liquidate its assets for some time. In September two members of a group trying to close the company were elected to its board. At the time, the company said the election would have no effect on the merger.

Also in September, the company agreed to sell its digital encoding patents to Microsoft for $7 million, a move that helped to set the stage for the merger with Alliance Entertainment. After unloading the patents, Liquid Audio planned to focus on providing digital distribution technology to online retailers, a plan it believed would complement Alliance Entertainment's business of distributing media offline.

It's unclear how the scuttled merger will affect the company's future. But Liquid Audio spokeswoman Kim Strop said the deal's demise doesn't mean the end of the company. She said Liquid Audio plans to roll out more details of its plans in the coming days. "We definitely have a few tricks up our sleeve," she said.

An Alliance Entertainment spokeswoman said she couldn't comment on Liquid Audio's future, adding that her company would focus on growing its business.

If Liquid Audio closes, it would join a growing list of Web music pioneers forced to shut their doors. Napster, Aimster and Scour no longer exist in their original form after legal tangles with the recording industry. Unlike those companies, however, Liquid Audio played by rules dictated by the music industry, securing agreements with major labels before offering their music.