Warner Music Seeks Potential Buyers
Jan 21, 2011 15:01:12 GMT -5
Post by 🅳🅸🆂🅲🅾 on Jan 21, 2011 15:01:12 GMT -5
By ETHAN SMITH And GREGORY ZUCKERMAN
Warner Music Group Corp. has enlisted Goldman Sachs Group Inc. to seek buyers for part or all of its business, a process that could lead to the sale or breakup of the world's third-largest music company, according to two people familiar with the matter, even as the company pursues an acquisition of competitor EMI Group Ltd.
Warner's sale exploration was reported earlier by the New York Times.
A Warner Music spokesman declined to comment on the Times report.
The transactions being explored by Goldman might not necessarily result in a sale of the entire Warner Music Group, these people said. Instead, they could involve a sale of just Warner's music-publishing arm. And at least some potential buyers have proposed buying just parts of Warner's recorded-music operation which includes the Atlantic and Warner Bros. record labels.
That could leave Warner as a massively slimmed-down operation, one that lacks the kind of cushioning provided by the lower-risk publishing business. But such a sale could position Warner to snap up much or all of EMI more easily than it would currently be able to.
Warner was approached in recent months by two different parties interested in buying its music publishing and at least parts of its recorded-music business, these people said. The company brought in Goldman to initiate a formal sale process, leading to the emergence of a third potential buyer. None of these entities has so far made a bid for all of Warner's business, these people said. Instead, at least some of them have proposed buying just the back catalog of recordings, along with music publishing. But it is unclear how feasible it would be to split up the recorded-music division along such lines.
It's not clear what such a sale could be worth. Recent transactions have valued music publishing companies at nine to 10 times a metric known as "net publisher's share," or NPS. Warner/Chappell Music Publishing had NPS of around $240 million last year, implying a valuation for the publishing arm alone of $2.2 billion to $2.4 billion—nearly as much as the $2.6 billion that a consortium of private-equity groups paid for all of Warner Music Group in 2003.
A sale could touch off an intense reshuffling among the biggest players in the music industry.
EMI, the No. 4 recorded-music company, has struggled to meet its obligations to its largest creditor, Citigroup Inc. and has repeatedly tapped investors for cash to pay the interest it owes on $5 billion debt.
If those debt troubles are not resolved they could eventually lead to Citigroup's taking control of EMI. In that event, Warner has been exploring the possibility of acquiring some or all of EMI, according to people familiar with the matter. Selling off key portions of Warner could streamline any EMI acquisition, these people said, which would likely face antitrust concerns otherwise.
A spokesman for EMI couldn't be reached immediately on Thursday night.
One interested party, according to these people, is a joint venture between Kohlberg Kravis Roberts & Co. and Bertelsmann AG, which recently joined forces to launch a music publisher and have aggressively snapped up small and medium sized companies in the field. Warner's music-publishing operation, known as Warner/Chappell, would add serious firepower to the KKR-Bertelsmann venture, known as BMG Rights Management.
Others interested in a potential deal besides Bertelsmann and KKR include both foreign and domestic private-equity firms and music industry players, according to someone close to the matter.
Goldman Sachs and KKR declined to comment.
Warner's stock is publicly traded, but around 70% of its shares are held by just three private equity groups, plus Warner Chairman and Chief Executive Edgar Bronfman Jr. The private equity groups are Thomas H. Lee Partners, Providence Equity Partners and Bain Capital Partners. Those investors bought Warner Music from Time Warner Inc. in a 2003 leveraged buyout paid for with $2.6 billion in equity and debt. They quickly recouped its $1.1 billion equity investment via a series of dividends, paid for with bond sales.
With interest rates low and private-equity firms finding it relatively easy to tap debt financing, some see the music publishing business's steady and dependable cash flow as attractive. At the same time, some investors cite growing use of music on the Internet and elsewhere as a reason to expect growth in music rights.
—Gina Chon contributed to this article.
online.wsj.com/article/SB10001424052748704747904576094730312346932.html
Warner Music Group Corp. has enlisted Goldman Sachs Group Inc. to seek buyers for part or all of its business, a process that could lead to the sale or breakup of the world's third-largest music company, according to two people familiar with the matter, even as the company pursues an acquisition of competitor EMI Group Ltd.
Warner's sale exploration was reported earlier by the New York Times.
A Warner Music spokesman declined to comment on the Times report.
The transactions being explored by Goldman might not necessarily result in a sale of the entire Warner Music Group, these people said. Instead, they could involve a sale of just Warner's music-publishing arm. And at least some potential buyers have proposed buying just parts of Warner's recorded-music operation which includes the Atlantic and Warner Bros. record labels.
That could leave Warner as a massively slimmed-down operation, one that lacks the kind of cushioning provided by the lower-risk publishing business. But such a sale could position Warner to snap up much or all of EMI more easily than it would currently be able to.
Warner was approached in recent months by two different parties interested in buying its music publishing and at least parts of its recorded-music business, these people said. The company brought in Goldman to initiate a formal sale process, leading to the emergence of a third potential buyer. None of these entities has so far made a bid for all of Warner's business, these people said. Instead, at least some of them have proposed buying just the back catalog of recordings, along with music publishing. But it is unclear how feasible it would be to split up the recorded-music division along such lines.
It's not clear what such a sale could be worth. Recent transactions have valued music publishing companies at nine to 10 times a metric known as "net publisher's share," or NPS. Warner/Chappell Music Publishing had NPS of around $240 million last year, implying a valuation for the publishing arm alone of $2.2 billion to $2.4 billion—nearly as much as the $2.6 billion that a consortium of private-equity groups paid for all of Warner Music Group in 2003.
A sale could touch off an intense reshuffling among the biggest players in the music industry.
EMI, the No. 4 recorded-music company, has struggled to meet its obligations to its largest creditor, Citigroup Inc. and has repeatedly tapped investors for cash to pay the interest it owes on $5 billion debt.
If those debt troubles are not resolved they could eventually lead to Citigroup's taking control of EMI. In that event, Warner has been exploring the possibility of acquiring some or all of EMI, according to people familiar with the matter. Selling off key portions of Warner could streamline any EMI acquisition, these people said, which would likely face antitrust concerns otherwise.
A spokesman for EMI couldn't be reached immediately on Thursday night.
One interested party, according to these people, is a joint venture between Kohlberg Kravis Roberts & Co. and Bertelsmann AG, which recently joined forces to launch a music publisher and have aggressively snapped up small and medium sized companies in the field. Warner's music-publishing operation, known as Warner/Chappell, would add serious firepower to the KKR-Bertelsmann venture, known as BMG Rights Management.
Others interested in a potential deal besides Bertelsmann and KKR include both foreign and domestic private-equity firms and music industry players, according to someone close to the matter.
Goldman Sachs and KKR declined to comment.
Warner's stock is publicly traded, but around 70% of its shares are held by just three private equity groups, plus Warner Chairman and Chief Executive Edgar Bronfman Jr. The private equity groups are Thomas H. Lee Partners, Providence Equity Partners and Bain Capital Partners. Those investors bought Warner Music from Time Warner Inc. in a 2003 leveraged buyout paid for with $2.6 billion in equity and debt. They quickly recouped its $1.1 billion equity investment via a series of dividends, paid for with bond sales.
With interest rates low and private-equity firms finding it relatively easy to tap debt financing, some see the music publishing business's steady and dependable cash flow as attractive. At the same time, some investors cite growing use of music on the Internet and elsewhere as a reason to expect growth in music rights.
—Gina Chon contributed to this article.
online.wsj.com/article/SB10001424052748704747904576094730312346932.html
