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Several sources point to the Steel missive's complaints about the Liquid's board's "poison pill" plan to protect the company from hostile takeover.

INVESTORS GO AFTER
LIQUID—UPDATE

Steel Partners Motivations For Published Letter Called Into Question
In a move that surprised many on Wall Street, investor Steel Partners II, the biggest shareholder in Liquid Audio, told the online software company Monday (9/10) that it should put itself up for sale.

Steel Partners II said Liquid Audio’s business strategy was "doomed" in the face of competition.

The investment group said in a letter to the company’s board of directors that it has lost confidence in the company's management given the consolidation in the online music sector, which is increasingly dominated by the record labels and software rivals RealNetworks and Microsoft, according to Reuters.

"We are deeply disappointed that the Board has adopted a business strategy doomed to failure and has not implemented a plan to maximize stockholder value," Steel Partners said in the letter. "It is Steel's belief that the company should be put up for sale to the highest bidder and that immediate measures should be undertaken to substantially reduce the cash burn rate."

Two upcoming online music ventures, MusicNet and Pressplay, could be potential acquirers of the company or its assets, the investment group said.

Yet numerous observers have called into question the motivation behind Steel's decision to publish its letter on Business Wire. Several sources point to the missive's complaints about the Liquid's board's "poison pill" plan to protect the company from hostile takeover. Since Steel has no alliance or other formal relationship with Liquid Audio, some digerati suggest that the former's inability to use its stock holdings to force the sale it so strongly recommends elsewhere in the letter is the true bottom line.

As of Monday's close, Liquid Audio had a market capitalization of about $53 million, down sharply from $236 million in July last year and down from a peak capitalization of over $1 billion in November 1999. More to the point, the day the letter was released, Liquid stock actually improved slightly.

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