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Blavatnik’s Warner takeover approved by the board

By | Published on Monday 9 May 2011

Warner Music

So, as was widely expected, Russian billionaire Len Blavatnik’s bid to buy Warner Music was approved by the major label’s board on Friday, bringing to an end a four month search for a new owner.

In the end the successful bidder was an existing shareholder, a former board member, a friend of CEO Edgar Bronfman Jr and the favourite to win from the start. You have to wonder why they bothered with all that expensive flim flam of sounding out other bidders. Still, it kept the bankers in new hats.

Under the deal agreed by the board and the bankers, Blavatnik’s Access Industries will acquire the whole Warner Music Group in an all-cash transaction valued at $3.3 billion. That means shareholders will get $8.25 per share. A statement from the Warner board said that it expected the deal to be completed by the autumn, assuming there are no issues with existing stockholders or competition regulators. Such issues are not anticipated.

Confirming the deal, the aforementioned Edgar, who has led Warner Music since leading the consortium that bought the music company from Time Warner in 2004, said: “We believe this transaction is an exceptional value-maximizing opportunity that serves the best interests of stockholders as well as the best interests of music fans, our recording artists and songwriters, and the wonderful people of this company”.

He added: “We are delighted that Access will be the new steward of this outstanding business. They are supportive of the company’s vision, growth strategy and artists, while bringing a fresh entrepreneurial perspective and expertise in technology and media. Most importantly, Access supports Warner Music’s commitment to our recording artists and songwriters who are the foundation of our current and future success”.

Blavatnik himself added: “I am excited to extend my longstanding involvement with Warner Music. It is a great company with a strong heritage and home to many exceptional artists. I look forward to working closely with the many talented people within the company”.

There was much speculation on Friday as to what Blavatnik’s ownership will mean for the future of the Warner Music Group. In reality, the answer is probably very little, in the short term at least, except that once the takeover is complete the music firm’s balance sheet will look a lot healthier.

As previously reported, it is thought that Blavatnik’s bid had the support of Bronfman Jr throughout, mainly because it was the one bid that would ensure that the Warner Music Group remained as one entity led by its existing CEO. There’s also wide speculation that, with an improved balance sheet and access to bigger cash reserves, Bronfman Jr will now mount a Blavatnik-endorsed bid to buy EMI, which current owner Citigroup is expected to put up for sale soon-ish. If that were to be successful, Bronfman Jr would have the combined EMI/Warner he has long desired to lead.

Of course, any EMI/Warner merger would be subject to the approval of competition regulators in the US and Europe, and IMPALA, the pan-European trade body which represents the indie label sector, has already implied it would fight any such major label consolidation unless significant ‘remedies’ were offered.

Although cautiously welcoming the new investment in Warner Music as being good for the wider music industry, IMPALA Exec Chair Helen Smith told CMU: “As many commentators have recognised, if one of the market leaders Sony or Universal were to make a move [for EMI], they would meet a regulatory brick wall. Any attempt to combine EMI with Warner would similarly be blocked unless there are substantial remedies to solve the competition problems of going from four to three majors”.

Actually, that an EMI/Warner merger would be blocked by European regulators is not a foregone conclusion, though any regulatory investigation into such a deal would be painful for both companies, and might make Citigroup more prone to sell to a non-music entity. The keyword, of course, is remedies.

Prior to Terra Firma’s 2007 acquisition of EMI, when a merger with Warner was last a strong possibility, Bronfman successfully negotiated a secret deal with the European indie community offering various remedies – thought to include major label support for indie digital rights body Merlin – in return for a commitment from IMPALA not to fight an EMI/Warner merger. Presumably Smith is looking for similar offers from Bronfman if he does indeed plan another EMI takeover bid.

Finally in Warner takeover news, some business commentators have observed that the Blavatnik deal puts the only publicly trading music major into private hands. With both Warner and EMI now privately owned, and Sony and Universal subsidiaries of much bigger congloms, none of the music majors are now directly trading on a stock exchange, making it harder to assess City feelings towards the music business. Which is a downer, assuming anyone cares about such feelings.



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