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REDWOOD CITY— Liquid Audio Inc. and Alliance Entertainment Corp. have modified the terms of their merger agreement, giving Alliance a larger share of the combined company. 

Internet music company Liquid Audio said it intends to conduct a self-tender offer, under which it will acquire 10 million of its shares at $3 a share in cash, in connection with the merger. 

After the merger, Liquid Audio stockholders will own 26 percent of the combined enterprise, and Alliance Entertainment stockholders will own 74 percent. 

Privately held Alliance Entertainment, which is based in Coral Springs, Fla., distributes CDs, videos, DVDs and games. 

In the agreement announced in June, Alliance was to receive 67 percent of the new company’s shares, and Liquid Audio was to hold the remaining 33 percent. Alliance will be getting less cash in the merger due to the self-tender and more equity. 

The agreement has been approved boy both companies’ boards. 

Liquid Audio’s board also considered Steel Partners’ proposal to purchase all of the company’s outstanding shares for $2.75 each and determined after consultation with its financial adviser that Steel Partners’ offer is “inadequate.”