Liquid Audio to Buy Alliance Entertainment

Liquid Audio Inc., an Internet music distributor, said it agreed to buy closely held Alliance Entertainment Corp., a distributor of video games, DVDs and compact discs, for about $118.3 million in stock.

Alliance is controlled by AEC Associates, a unit of Los Angeles investment firm Yucaipa Cos. The company filed for Chapter 11 bankruptcy protection in July 1997. Liquid Audio said it will pay Alliance shareholders 46.2 million newly issued Liquid Audio shares. Alliance holders would own 67% of the combined company.

The value of the agreement is based on Liquid’s closing price Wednesday of $2.56 a share. On Thursday, the shares dropped 26 cents, or 10%, to $2.30 on Nasdaq.

Redwood City, Calif.-based Liquid Audio said it postponed its July 1 shareholder meeting and will set a later date so investors can vote on the transaction.