September 25, 2020

DealBook: Warner Music to Sell Itself to Access for $3.3 Billion

Singer Janelle Monae, who is on Warner Music’s Atlantic Records label.Charles Sykes/SYKEC, via Associated PressSinger Janelle Monae is on Warner Music’s Atlantic Records label.

12:49 p.m. | Updated

The Warner Music Group agreed on Friday to sell itself to the investment vehicle of the Russian-born billionaire Len Blavatnik for about $3.3 billion, including the assumption of debt, ending a sales process that lasted months for the music record company.

Under the terms of the deal, Mr. Blavatnik’s Access Industries will pay $8.25 a share for Warner Music. That is a 4.4 percent premium to the company’s Thursday closing price of $7.90, and about 34 percent higher than Warner Music’s average share price over the last six months.

Edgar Bronfman Jr., Warner Music’s chairman and chief executive, and the private equity firms THL Partners and Bain Capital, which together own 56 percent of Warner Music’s stock, have agreed to support the deal.

“We are delighted that Access will be the new steward of this outstanding business,” Mr. Bronfman said in a statement. “They are supportive of the company’s vision, growth strategy and artists, while bringing a fresh entrepreneurial perspective and expertise in technology and media.”

Shares in Warner Music have jumped 40 percent this year as investors eagerly anticipated a sale of the company.

The sale may eventually lead to more consolidation in the music industry.

Many analysts believe that Warner’s new owner will likely also bid on EMI, the fourth-largest music company, which is expected to go on the market soon.

EMI was seized by Citibank earlier this year after its owner, the British private equity firm Terra Firma, defaulted on a $5 billion loan. Combining Warner and EMI, analysts say, could eliminate hundreds of
millions of dollars in redundancies, making the investment profitable.

“The next step is that I would expect Access to look at buying part or all of EMI and making a larger record company, to consolidate the industry into three competitors rather than four,” said Laura Martin, an entertainment and media analyst with Needham Company. “That helps pricing power, and also helps business-model innovation go faster.”

Since putting itself up for sale in January, Warner Music had attracted dozens of potential buyers, from other music companies to billionaires seeking a trophy acquisition.

By this week, three suitors had emerged with strong prospects: Mr. Blavatnik; Tom and Alec Gores, brothers who run their own private equity shops; and Sony/ATV Music Publishing, which had been working with the billionaire Ronald O. Perelman and the investment firm Guggenheim Partners. The Gores brothers’ bid was $7.50 a share.

Of the bidders, Mr. Blavatnik had long been seen as the most likely winner. A former Warner Music board member, he has retained both close ties to top company officials like Mr. Bronfman and an equity stake.

“I am excited to extend my longstanding involvement with Warner Music,” Mr. Blavatnik said in a statement. “It is a great company with a strong heritage and home to many exceptional artists.”

Since immigrating to the United States in 1978, Mr. Blavatnik has become one of the world’s richest men through his varied investments, primarily in the industrial sector. Access owns stakes in companies including Warner Music; TNK-BNP, the Russian oil giant; and LyondellBasell, a chemical company that has rebounded from bankruptcy. (Mr. Blavatnik is fending off a lawsuit by that company’s creditors, who allege that his takeover of the chemical maker larded it with an unsustainable amount of debt.)

Other potential bidders complained during the sales process that they felt that the end result already seemed oriented toward a win by Mr. Blavatnik, people briefed on the matter said previously.

Yet Mr. Blavatnik will still have a challenge on his hands, as the recorded music industry continues its battle to stem declining sales. Digital music downloads have been rising, but not nearly enough to replace the revenue lost from falling CD sales.

He will also have to contend with Warner Music’s strained financials, including the company’s roughly $2 billion of debt.

The deal with Mr. Blavatnik is expected to close in the third quarter. He is expected to finance the purchase with cash on hand, as well as with financing provided by Credit Suisse and UBS.

Warner Music was advised by Goldman Sachs; AGM Partners, the advisory firm run by Alan Mnuchin; and the law firm Paul, Weiss, Rifkind, Wharton Garrison. Access was advised by Credit Suisse, UBS and the law firm Debevoise Plimpton.

Andrew Ross Sorkin contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=d91ed13d49ce26669475bfd8abf5767d

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