Tom and Alec Gores are considering a revised bid for Warner Music Group Corp. (WMG), said a person with knowledge of the situation, challenging the record company’s agreement to be bought for $3.3 billion.
The brothers, private-equity billionaires, are weighing an offer of $8.35 to $8.50 a share, said the person, who asked not to be identified because the deliberations are private. Warner Music agreed today to be bought for $8.25 a share, or $1.3 billion plus assumed debt, by Len Blavatnik’s Access Industries.
Warner Music’s board can consider higher offers for 30 to 60 days, the person said. The size of a new bid will hinge on any breakup fee pledged to Blavatnik, and whether the company reports higher-than-estimated earnings on May 10, the person said. The Gores are contacting Sony Corp.’s music division and Vivendi SA’s Universal Music to join them, the person said.
Will Tanous, a Warner Music spokesman in New York, declined to comment, as did Mark Barnhill, a spokesman for Tom Gores’s Platinum Equity in Beverly Hills, California. A spokesman for Alec Gores also wouldn’t comment.
Warner Music climbed 28 cents, or 3.5 percent, to $8.18 at 4:15 p.m. in New York Stock Exchange composite trading.
The $8.25 purchase price agreed to with Blavatnik, a former Warner Music director, represents a 75 percent premium over the close of $4.72 on Jan. 20, before the New York Times reported the company hired Goldman Sachs Group Inc. (GS) to recruit bidders.
Edgar Bronfman, chairman and chief executive officer of Warner Music, holds about 10.8 million shares, or close to 7 percent of the stock, according to data compiled by Bloomberg. The shares are valued at $88.9 million under the $8.25-a-share agreement.
On Jan. 18, two days before it was known the company was seeking a buyer, the board improved the terms of stock grants to Bronfman and another senior executive, Vice Chairman Lyor Cohen, according to a regulatory filing the following day.
Under Bronfman’s revised grants, which are 60 percent vested, the CEO will receive 825,000 shares if the stock stays over $7 for 60 trading days and an equal number if the stock stays above $8 for the same period of time, according to the filing. The stock had to reach at least $10 previously.
Warner Music said today it expected the agreement with Blavatnik to close during the third quarter.
Eight of Warner Music’s 13 directors are executives of Thomas H. Lee Partners LP and Bain Capital LLC, two Boston-based private-equity firms that together hold 51 percent of the company’s shares.
If the Gores move ahead with a new bid, they will extend a three-month auction that also included a joint offer from Sony’s music unit, billionaire investor Ronald Perelman and Chicago- based private equity company Guggenheim Partners LLC.
Blavatnik or another buyer of Warner Music may seek to buy London-based EMI Group Ltd., seized by creditor Citigroup Inc. this year, in an industry struggling to boost digital revenue to offset the impact of falling CD sales and piracy.
“The music industry is at an inflection point where digital adoption is rapidly gaining momentum,” Jorg Mohaupt, head of media at Blavatnik’s Access Industries, said in the statement. “Warner Music, as one of the most progressive forces in the music business, is well positioned to capture this opportunity for music creation and distribution.”
Citigroup’s takeover of EMI, which struggled to meet the terms of loans used to finance its takeover by Guy Hands, may spark a reorganization of the music industry involving Warner Music, analysts including Laura Martin at Needham & Co. said before today’s deal. Warner Music had worked on a possible bid for EMI before it was seized, a person familiar with the plan said at the time.
Blavatnik, 53, a billionaire industrialist, has made clear his interest in U.S. entertainment assets since bidding unsuccessfully last year for Metro-Goldwyn-Mayer Inc. In 2009, he bought the U.K. distribution arm of Mel Gibson’s Icon Group, gaining international rights to the actor’s work and films including “Driving Miss Daisy” and “Dances With Wolves.”
Blavatnik was estimated to be worth $10.1 billion in March by Forbes magazine. His all-cash purchase was approved by Warner Music’s board, the company said. Blavatnik secured some financing from Credit Suisse and UBS Investment Bank.
Record companies including Warner Music have faced shrinking revenue and piracy even as the digital music industry boomed with the advent of Apple Inc.’s iPod and iTunes store.
Warner Music’s revenue has declined to $2.98 billion in 2010 from $3.52 billion in 2006, and was projected to fall further to $2.7 billion this year, the average of six analysts’ estimates compiled by Bloomberg.
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