Embattled music download service Napster could be saved from collapse in a move that would see the company filing for bankruptcy then being acquired outright by German media giant Bertelsmann.
Following frantic talks that continued late into Friday night, Bertelsmann believes it has engineered a deal that will allow it to buy the Napster technology and brand but escape the company's liabilities.
Napster faces a legal bill for hundreds of millions of dollars as a result of lawsuits being pursued against it by Sony, EMI, AOL Time Warner, Vivendi Universal and Bertelsmann itself.
But the German company believes it can escape the debts if Napster, which had upwards of 80m users at the height of its popularity, files for Chapter 11 bankruptcy protection before buying the assets.
It expects to have to inject a further £5.5m into Napster to resuscitate the company, as well as writing off the £59m it has already handed over in the form of loans.
As part of the deal, Shawn Fanning - the whizzkid who founded the site on a laptop at the age of 19 - will return to the company as chief technology officer while the former BMG chief, Konrad Hilbers, will come back as chairman and chief executive.
Both resigned last week after a boardroom row over whether Bertelsmann should be allowed to take over the company.
Sources close to the negotiations last week suggested Bertelsmann would walk away after its offer was rejected but a change of heart by Hank Barry, a former Napster chief executive and partner at investor Hummer Winblad, has revived the deal.
Hummer Winblad had opposed the original deal - which would have seen Bertelsmann acquiring the company outright for around £12m - because it felt Napster would still have been open to paying out on the law suits.
Even if it is brought back from the brink, many within the industry remain sceptical over whether Napster can ever relaunch as a commercial service.
Despite its famous brand name, it would still have to persuade the major record companies to supply it with music and persuade users to pay.
