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"The deficiency in this case is so apparent it can't be cured by the sale auction process."
——Judge Peter Walsh
"TAINTED" LOVE: NAPSTER SALE TO BERTIE DENIED—UPDATE
Judge Cites Hilbers’ "Divided Loyalty" in Quashing Deal; Netco’s Next Chapter is
Probably 7
Asserting that Napster CEO Konrad Hilbers’ ties with Bertelsmann "tainted" the prospective sale of the crippled netco’s assets to the German media conglom, a U.S. Bankruptcy Court judge has denied the transaction.

As a result, the defunct swappery now faces a Chapter 7 bankruptcy, which entails the liquidation of its assets and their division among its creditors.

Bertelsmann had hoped to plunk down $8 million for the peer-to-peer pioneer’s assets, on top of the estimated $85 mil it had already pumped into the once-popular enterprise.

The proposed deal, masterminded (if that’s the word) by former Bertie chieftain Thomas Middelhoff, had to be in "good faith" and "at arm’s length" to satisfy the court. The bankruptcy judge hearing the case agreed with the record labels and others who objected that it was neither.

"The deficiency in this case is so apparent it can't be cured by the sale auction process," Judge Peter J. Walsh ruled. "It is abundantly clear Mr. Hilbers had one foot in the Napster camp and one foot in the Bertelsmann camp, and so tainted the sale."

Hilbers’ "divided loyalty," Walsh decreed in the Delaware court, meant the sale could compromise the interests of Napster’s many creditors, including the record companies to which it owed substantial damages for contributory copyright infringement.

Walsh cited an e-mail to Bertelsmann execs from Hilbers, who declined to testify in the case, in justifying his decision. The message reads, "My decision-making was always driven by what I thought was a better decision for Bertelsmann." Um, oops.

"We accept the court's decision that the sale of Napster's assets to Bertelsmann has been denied and that the purchase will not proceed," goes a Bertie statement.

A quote attributed to Hilbers was also released to the press. "Napster is disappointed with the bankruptcy court's decision not to approve the sale of the company's assets to Bertelsmann," it reads. "As a result of the record companies' and music publishers' opposition, Napster's creditors will be denied substantial repayment and the company will likely be forced into Chapter 7 liquidation."

"I don't understand where Bertelsmann thought they were going to find greater value [than the proposed price]," said former Napster marketing exec Mark Hughes. "There is no user base or unique, patentable technology. What was once their most powerful asset, their famous brand, now lies like a dead deer on the side of the road."

The further undoing of Middelhoff’s acquisitive legacy by the regime of his successor, Gunter Thielen, was evidenced by today’s announcement that the firm sought a buyer for BOL (Bertelsmann Online), its book e-tail unit.

In other goodbye-to-synergy news, Vivendi Universal has announced plans to sell its European Internet venture, Vizzavi, which ousted leader Jean-Marie Messier once trumpeted as a portal for multimedia digital delivery.

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