Sources say Warner Music ponders going private
NEW YORK (Reuters) - Warner Music Group Corp (WMG.N), whose shares are down nearly 50 percent this year, is considering strategic options such as going private, buying back shares or securitizing its publishing assets, sources familiar with the matter said on Wednesday.
Management has been considering all options in the weeks since rival EMI Group Plc EMI.L accepted a $4.86 billion buyout by private equity firm Terra Firma.
The two music companies had spent several years flirting with the idea of a combination, but Warner decided in July that it could not justify a higher bid for EMI than that made by Terra Firma.
Warner's share price jumped 21.3 percent to $12.00 on Wednesday, after the New York Post reported that the company was considering taking itself private.
That is only one of several options under consideration, sources told Reuters on condition of anonymity.
Another option is the securitization of the Warner/Chappell music library, which includes songs like "Happy Birthday To You" and the works of Led Zeppelin and Green Day.
By securitizing its library, Warner would sell the rights to future song royalties and provide another source of revenue. EMI said in April it would securitize songs in its publishing unit.
Warner Music Chief Executive Edgar Bronfman told Wall Street analysts on Tuesday that the company's current stock market valuation did not accurately reflect the value of its assets, in particular its publishing unit Warner/Chappell.
"I do think that there is significant gap between the actual value of our assets and our current share price," Bronfman said. "That gap has widened dramatically in recent months," he added.
On Tuesday, Warner Music reported a disappointingly wider quarterly loss, sending its shares down about 10 percent to $9.80 -- their lowest level since listing on the New York Stock Exchange in 2005.
The stock has generally been on a decline since hitting a record-high last November of $27.24, as the music industry was hit by a steeper-than-expected downturn in CD sales that was only partially offset by rising digital music revenue.
In 2004, Time Warner Inc. (TWX.N) sold the music company for $2.6 billion to an investor group led by Thomas H. Lee Partners, Bronfman, Bain Capital and Providence Equity Partners. The three private equity groups still own about 62 percent of the music company.
Despite the downtrend in the stock, analysts still view the deal as a good one for the investors.
"It was a great deal, even today it stands as a great deal," said Wachovia analyst Bishop Cheen. "They got into Warner cheap ... which is exactly why they didn't want to throw good money after bad and buy EMI."
Standard & Poor's analyst Tuna Amobi agreed. "They've made their money back -- there's no question in anyone's mind that was a slam dunk deal for the investors." Continued...
