Napster Hits the Auction Block

Industry rivals who have been waiting to get a piece of Napster finally have their shot, as assets of the bankrupt file-swapping service went up for auction Friday.

Napster's creditors are asking for $25 million for the defunct service in an auction due to be held on August 27. The bid deadline is August 21.

The auction is being conducted by Trenwith Securities, a wholly owned subsidiary of BDO Seidman, with headquarters in Costa Mesa, California. Napster's creditors hired Trenwith on August 1 to drum up interest in the auction, which is being held as part of Napster's Chapter 11 bankruptcy filing.

Going, Going, Gone

Napster filed for bankruptcy in June, two weeks after its major creditor, German media group Bertelsmann, agreed to purchase the beleaguered service for $8 million, after sinking close to $100 million worth of loans and other financing into the company.

Bertelsmann is expected to be the highest bidder in the auction, as it guns to use Napster to launch an online music subscription service. The German conglomerate has already said it will bid $9 million over the asking price.

What's more, Bertelsmann is offering to waive some $90 million in loans, plus an additional $5.1 million in debitor-in-possession credit it extended to keep Napster afloat, making its final bid worth over $100 million, according to Rick Chance, managing director of Investment Banking at Trenwith.

Accepting Offers

Despite Bertelsmann's hefty bid, Trenwith is casting a wide net for the Redwood City, California, company's assets, internationally and to a variety of industries, Chance says.

"What makes this engagement challenging is that it has a very wide distribution," he says. Adding to the challenge is that the securities firm only has eight business days to generate interest in the auction.

"It's a very accelerated, very intense process," Chance says.

To woo potential investors, the firm is advertising the large growth opportunities predicted for online music subscription services, as well as Napster's leading brand name strong management team.