Beaten-Down ArtistDirect to Buy Back Shares, Options

ArtistDirect Inc., the financially struggling Los Angeles “dot-com” music firm backed by four of the major record labels, said it will buy back more than 7.5 million shares of its common stock and unexercised options to satisfy regulatory requirements.

In addition, the company’s stock price closed below $1 for the 30th consecutive day Monday, triggering an automatic warning that it is in jeopardy of being delisted from Nasdaq.

ArtistDirect provides music and multimedia content through its myriad Web sites and builds e-commerce shops for dozens of well-known acts, such as the Backstreet Boys, the Rolling Stones and No Doubt.

Many artists and their managers received an undisclosed amount of equity in the company in exchange for letting ArtistDirect sell merchandise and concert tickets directly to fans, according to a Securities and Exchange Commission filing.

But changes in federal laws, the company said, made the grants to artists and consultants questionable.

ArtistDirect said it is offering to repurchase 585,724 shares it issued to artists and managers, and 7 million in unexercised stock options, the SEC filing said.

The company--which recently fired 30 people, or 12% of its staff, as part of a corporate restructuring--estimates that the buyback will cost about $10.2 million if everyone issued either stock or options wants to unload it. As of Sept. 30, ArtistDirect had $97 million in cash and investments.

“Given the company’s stock price, we expect a large number of people to ask for the cash,” said James Carroll, ArtistDirect’s chief financial officer.

The company’s stock, which has plummeted more than 93% since its initial public offering in March, dropped 6 cents Monday, closing at 59 cents a share. The stock, which initially sold for $12 a share, hit its all-time peak of $12.75 during the first day of trading. It hit an all-time low of 50 cents Oct. 26.

ArtistDirect is among a growing number of dot-coms that have seen their share prices plunge under $1, thrusting them into dangerous territory. If a company’s stock price closes below $1 for 30 consecutive trading days, Nasdaq sends a warning letter and gives the company 90 days to pull the price back up for 10 consecutive trading days.

If the stock does not rebound, Nasdaq delists it. However, a firm can appeal that decision.

To avoid this fate, dot-coms have rolled out various measures, including reverse stock splits. Earlier this month, Musicmaker.com launched a one-for-10 reverse split in an effort to boost its share price.

Carroll said ArtistDirect has had numerous conversations with Nasdaq and is currently evaluating its options, which include a reverse stock split.