Napster's Bankruptcy Draws to a Close

Though the remaining assets of the bankrupt file-swapping service Napster are expected to go to the German media group Bertelsmann on Thursday, the German company is declining to count any of its chickens just yet.

"The court in Delaware will come together this afternoon and decide if there is to be an extension of the process by which Napster's assets are being sold off. There have been some objections by music publishers and music record labels but we are confident with our offer," says Bertelsmann spokesperson Gerd Koslowski. That court hearing is scheduled for 4 p.m. EDT.

Napster filed for Chapter 11 bankruptcy last June, two weeks after Bertelsmann, Napster's major creditor, agreed to purchase the beleaguered service for $8 million, after sinking close to $100 million worth of loans and other financing into the company.

On the Auction Block

Earlier this month, in a last ditch effort to squeeze as much cash as possible out of the company, Napster's creditors hired Trenwith Securities, a wholly owned subsidiary of BDO Seidman, with headquarters in Costa Mesa, California, to drum up interest in an auction of Napster's remaining assets.

Napster's creditors have been asking as much as $25 million for the defunct service. Bertelsmann is widely expected to win the right to buy Napster's remaining assets in the bankruptcy court auction.

The German conglomerate said before the auction that it would bid $9 million over the asking price. Additionally, according to Trenwith, Bertelsmann offered to waive some $90 million in loans, plus an additional $5.1 million in debtor-in -possession credit it extended to keep Napster afloat, making its final bid worth over $100 million.

Uncertain Future

It is still unclear what Bertelsmann would do with Napster should it acquire the Redwood City, California, company and all of its remaining assets.

Initially, Bertelsmann had planned to relaunch Napster as a legitimate subscription-based file-swapping service to compete directly against major-label backed ventures such as MusicNet and Pressplay. But Napster's already uncertain future became cloudier when Napster-backer and former Bertelsmann Chief Executive Thomas Middlelhoff left the company late last month.

"If we get the assets of Napster, there will be a closing period and once that is completed, we would look forward to outlining how Napster would work within Bertelsmann. We would hope that could be as early as next week, but while the process is still going on, we are unable to comment," Koslowski says.