Billionaire Blavatnik Will Buy Warner Music in Deal Valued at $3.3 Billion
Warner Music Group’s former director Len Blavatnik agreed to buy the record company of artists including Cee Lo Green and Bruno Mars for about $1.3 billion, a deal that may trigger a round of industry consolidation.
Blavatnik’s Access Industries Holdings will pay $8.25 a share, the companies said in a statement today. The sale of New York-based Warner Music includes bond debt, valuing the entire transaction at about $3.3 billion, they said.
The sale caps a three-month auction whose finalists included brothers Tom and Alec Gores and Sony/ATV Music Publishing. It may help position Warner Music to make a bid for London-based EMI Group Ltd., seized by creditor Citigroup Inc. (C) 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.”
Warner Music rose 19 cents to $8.09 at 1:26 p.m. in New York Stock Exchange composite trading. The purchase price represents a 75 percent premium over the close of $4.72 on Jan. 20, before the New York Times reported the company had hired Goldman Sachs Group Inc. to recruit bidders.
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. He helped lead the creation of the Russian oil company TNK-BP and holds a 16 percent stake in the chemical producer LyondellBasell Industries NV (LYB), according to data compiled by Bloomberg.
Industry in Flux
The all-cash purchase was approved by Warner Music’s board of directors, the company said. The sale is expected close in the third quarter.
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 its iTunes music store, the largest retailer of digital tracks with 28 percent of the total U.S. music market, according to NPD Group.
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 estimate of analysts.
Global music sales may begin to grow again in 2013, the accounting firm PricewaterhouseCoopers said in a report last year. Industry sales totaled $26.4 billion in 2009.
Impala, an independent record labels group based in Europe, said that while it hoped for a “sound financial future” for Warner, any move to merge a major rival such as Sony Corp. or Vivendi SA’s Universal Music with EMI would meet regulatory obstacles.
“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,” Executive Chairwoman Helen Smith said in a statement today.
Blavatnik’s Access Industries secured some of the financing for the deal from Credit Suisse and UBS Investment Bank.
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. Chairman and Chief Executive Officer Edgar Bronfman Jr. owns about 7 percent of the stock.
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