Blavatnik's Access wins Warner Music for $3.3 billion

NEW YORK Fri May 6, 2011 5:29pm EDT

The headquarters of Warner Music Group is pictured in Burbank, California August 5, 2008. REUTERS/Fred Prouser

The headquarters of Warner Music Group is pictured in Burbank, California August 5, 2008.

Credit: Reuters/Fred Prouser

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NEW YORK (Reuters) - Access Industries' $3.3 billion winning bid to buy Warner Music Group Corp adds another media company to billionaire Len Blavatnik's empire and sets the stage for a possible bid for rival EMI Group.

Blavatnik's all-cash deal for Warner values the world's third-largest music company at $8.25 a share plus debt. Private equity investor THL Partners, which invested in 2004, stands to double its money.

The acquisition adds to Blavatnik's roster of media companies such as Russia's Admedia and the UK's Top Up TV.

It also cements a long relationship between the Russian-born billionaire and Warner Music Chief Executive Edgar Bronfman Jr and his father. Blavatnik bought Bronfman Jr's house in 2007 for $50 million, 11 times what the music chief had paid for it 12 years earlier.

Blavatnik is likely to keep Warner Music's management in place and turn to the team to lead a run for EMI, home of current acts like Lady Antebellum and Coldplay as well as marquee names that include the Beatles.

EMI is owned by Citigroup, which took control of the company after its former private equity owner Terra Firma defaulted on loans.

If Blavatnik makes a successful bid for EMI, he could be rewarded with a quick return on his investment by combining the companies and saving hundreds of millions of dollars in costs.

Blavatnik agreed to pay a 63 percent premium to Warner's share price on January 20 when news broke that the music company's board had assigned advisers to explore its strategic options -- including a sale.

Warner Music, whose roster of artists include Bruno Mars, Green Day, Red Hot Chili Peppers and Led Zeppelin, will become an autonomous unit of Access. It will sit alongside industrial assets, including natural resources and chemicals, as well as media and telecommunications.

Blavatnik beat out last-round bids from Tom and Alec Gores' Platinum Equity/The Gores Group and Sony Corp in partnership with Guggenheim Partners and investor Ron Perelman. Other first and second round bidders included BMG Music Rights, a joint venture between Bertelsmann and KKR; and investor Ron Burkle's Yucaipa Co.

Bloomberg reported on Friday that the Gores are weighing a counter offer to Blavatnik's bid of $8.35 to $8.50 for Warner, citing one source. A spokesman for Gores declined to comment.

EXTENDING EMPIRE

Blavatnik, 53, has been a U.S. citizen since 1984. Living in both London and New York, Blavatnik ranks No. 80 on the Forbes world billionaires list released in March, with a net worth of $10 billion.

Blavatnik became a director at Warner Music in 2004, when Bronfman led a private equity buyout of the company from Time Warner Inc. Although he stepped down from the board in 2008, he retained a 2 percent stake in Warner Music.

Blavatnik's other media investments include broadcaster Top Up TV, Scandinavian mobile data and voice services provider ice.net and Russian television series producer Amedia.

Known for his investments in natural resources and chemicals, he is also a director of aluminum giant UC Rusal.

BUYOUT PAYDAY

Bronfman and private equity firms Thomas H Lee Partners and Bain Capital Partners together hold around 56 percent of the company's outstanding shares and have entered into a voting agreement with Access to vote in favor of the merger.

Thomas H Lee Partners will make a return of about two times its original $655 million investment on sale of Warner Music Group to Access Industries, a source familiar with the investment said on Friday.

Boston-based THL Partners was the largest private equity investor in the $2.6 billion buyout of Warner Music in 2004.

The $655 million includes money from co-investors -- limited partners which invested alongside THL.

The investment reaped THL and its co-investors about $775 million in a series of dividends paid during the life of the investment, the bulk of which were paid in the first year, the source said. THL and co-investors' stake of about 56 million shares in Warner is worth about $460 million at Friday's offer price of $8.25.

Taking Warner Music away from the demands of being publicly traded is seen as an opportunity for Warner Music executives to take a bigger gamble on refocusing the company's traditional business model in the face of shrinking sales, rampant piracy and an uncertain digital future.

Access secured deal financing from Credit Suisse and UBS, who were also advisers on the deal alongside Debevoise & Plimpton LLP. Warner Music was advised by Goldman Sachs, AGM Partners and Paul, Weiss, Rifkind, Wharton & Garrison LLP.

(Reporting by Yinka Adegoke and Megan Davies; Editing by Gerald E. McCormick, Gunna Dickson and Richard Chang)

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