German media giant Bertelsmann has been negotiating to buy Napster Inc. for $15 million to $30million, but the talks are on hold because of infighting among Napster's other investors, shareholders in the closely held firm said Wednesday.
The dispute focuses on how much the song-sharing service is worth and how that money should be divided among Napster's several classes of shareholders, investors said. The fight surfaced this week when founder John Fanning sued to have two members of the Silicon Valley firm of Hummer Winblad Venture Partners removed from Napster's board.
Hummer Winblad invested $13.5million in Napster two years ago, and Fanning's lawsuit aims to prevent the venture capital firm from keeping most of the money from a purchase. Under the terms of its investment, Hummer Winblad could cash out before other shareholders.
Fanning and other investors want to convert Hummer Winblad's preferred shares to common, meaning more shareholders would see money from a sale. But Hummer partners John Hummer and Hank Barry say the conversion is illegal.
Fanning's suit says Hummer and Barry are disputing a move by a majority of shareholders to have them replaced as Napster directors. It asks the court to resolve the crisis quickly, citing an unspecified offer to purchase the company.
Several investors said the offer was from Bertelsmann, which wants the conflict ended before it renews its bid. Bertelsmann declined to comment, but sources close to the company said it had not committed to buying Napster.
Napster Chief Executive Konrad Hilbers called the suit "legally groundless." Fanning, Hummer and Barry all declined to comment.
The strategy in the legal case is complex, and the underlying agreements have not been made public.
The dispute began after word spread among Napster shareholders that Napster's board was considering the buyout from Bertelsmann, which has loaned the Redwood City, Calif., firm more than $60 million and has the right to take a large equity stake in it.
Napster's board consists of Fanning, who incorporated the firm in 1999, Hilbers, Hummer and Barry, who served as CEO before Hilbers joined the company last year. Fanning's nephew Shawn Fanning, who won world fame for writing the software that attracted more than 50 million users seeking free music, still works at Napster but is not a director.
