Peter Kafka

Recent Posts by Peter Kafka

Meet Warner Music's New Owner (For Now): Len Blavatnik

Warner Music Group has a new owner: Len Blavatnik, a Russian-born billionaire who already owned part of the music label.

Next question: Will Blavatnik keep his new purchase, carve it up, or try to double down on his music bet?

Reuters says Blavatnik’s Access Group has won the auction for Warner with an offer of $8.25, which will give the company an enterprise value of $3.3 billion. The Warner auction has dragged on for months, but reports for the last few days have put Blavatnik in the lead.

[UPDATE: Warner has confirmed the deal via press release. It's all-cash, as expected, and will be financed in part by Credit Suisse and UBS. It's expected to close in Q3.]

The deal will be a victory for the consortium of private equity groups that bought the company from Time Warner in 2004; they’ve already recouped their initial $2.6 billion investment via dividend payouts, so the purchase will be pure profit.

And it’s also supposed to be good news for Warner CEO Edgar Bronfman Jr., who supposedly would like to keep running the music company; he has had a long relationship with Blavatnik, who had previously served on Warner’s board. (“They know that our people are the best in the business,” Bronfman told his employees via an internal memo this morning.)

But Blavatnik’s win may not be the last move for Warner. Speculation will immediately move on to the status of EMI Music Group, which is currently owned by Citigroup but won’t be for long. Warner and EMI have been trying to merge for more than a decade, so it’s possible that Blavatnik will try to make that happen with another deal.

In a related scenario, he may try to sell off part of Warner–most likely its Warner/Chappell publishing arm. A logical buyer for that asset would be the Sony/ATV music publishing company, which was also bidding for Warner this week.

Side note: Blavatnik’s win, for now, also means that Internet star Sean Parker won’t own a piece of the music business; Parker was aligned with supermarket magnate Ron Burkle‘s bid for Warner, and Burkle dropped out last week.

Here’s Bronfman’s companywide memo announcing the deal:

Dear Colleagues:

Today marks a milestone in our evolution as a company.

We have just announced that Warner Music Group is being acquired by Access Industries. This is strong validation that WMG is today one of the most progressive forces in music and recognition that we are well-positioned to succeed through the industry transition.

Access is deeply committed to helping us achieve our fullest potential in the years to come. They value our rich history and understand that success relies on a relentless commitment to artist development and A&R. They know that our people are the best in the business. And they recognize the excellence in both our recorded music and music publishing divisions and our incredible family of recording artists and songwriters. Further, Access has an established and successful track record of supporting entrepreneurs in various fields including media. They understand our business and our culture, and we will no doubt benefit from their global business expertise and strategic wisdom.

We have achieved so much in the past seven years in the transformation of our company and, in addition to these achievements, we have continued to invest strongly in A&R and artist development while also fundamentally revamping our approach to artist relationships. Now, we are true partners with artists in almost every aspect of their careers. This disciplined, thoughtful and creative approach sets the stage for our future growth.

I would also like to thank our original investors, who remained steadfast in their support of our company even during a very challenging industry transition. We are grateful for their thoughtful guidance and wise counsel. Today’s announcement is also a validation of their vision for the prospects of a progressive music company.

I have no doubt that our new owners will serve as fantastic new stewards for our company, our artists and songwriters, for music fans and for our employees.

The transaction is expected to close in the third quarter of this calendar year, subject to stockholder approval and the customary closing conditions and regulatory reviews. After the closing, WMG will become a private company and our stock will no longer trade on the New York Stock Exchange.

Until that time, it is business in the normal course. Again, it’s very important that we keep our eye on the ball and continue to serve artists, songwriters, customers, partners and music fans at the same high levels they have come to expect of us.

Finally, let me once again thank you for everything you’ve done to help bring us to this moment. Today’s news is tangible evidence of how far we’ve come as a company and how much WMG can accomplish in the years ahead. You remain, quite simply, the best in the entire industry and I can’t wait to see what the future brings.

If you do have further questions or comments, I hope that you will email me directly at edgar@wmg.com. You can read the full press release at www.wmg.com.

Sincerely,

Edgar


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