Warner Music is for sale...

[CADreaming]

I hope this doesn't affect any new album release dates...

Facing the music
PE firm Lee forces Bronfman's hand at Warner

By CLAIRE ATKINSON

Last Updated: 4:50 AM, January 22, 2011

Posted: 11:22 PM, January 21, 2011

Warner Music hired Goldman Sachs to prepare for a possible sale of the record label after one of its largest shareholders decided it wanted to sell its stake in the No. 3 music company, two sources told The Post.

The shareholder, Thomas H. Lee Partners, a private-equity giant that owns roughly 35 percent of Warner Music, recently informed CEO Edgar Bronfman it was preparing to sell its stake, the sources said.

THL Partners refused to comment, but one source familiar with the firm's thinking, when asked how much the investor expected to get from a possible sale, said, "Hopefully s***loads."

Warner Music has a market capitalization of about $930 million. Its publishing arm, Warner/Chappell, is said to be worth around $2 billion.

After holding informal talks with rival labels and with buyout shop KKR for some months, Bronfman hired Goldman to sound out other options -- including a sale of Warner/Chappell in order to wipe out the debt on the recorded music side of the business and allow for a possible bid for rival EMI.

EMI is currently owned by troubled private-equity firm Terra Firma, which is expected to default on its debt obligations in the first half of 2011 and hand EMI back to lender Citibank. At that point, Citibank is expected to put EMI on the block.

Having two big music assets on the market simultaneously could be viewed as bad timing, but it could help put a price on EMI relative to Warner's own assets and perhaps end a standoff between Terra Firma, run by Guy Hands, and Citibank.

"They want Citi and Guy to sit down and say 'Let's sell it to Warner and get out.' " someone familiar with Warner's thinking told The Post. Warner wants to buy EMI's publishing business and hopes to portray itself as friendly, the person said.

Warner would have to sell its own publishing assets in order for such a deal to pass muster with regulators. Warner Music shares rose 27 percent yesterday, to $6.01, on news of a possible sale.

"If Warner can sell Warner/Chappell for a great price, it makes it easier [for it] to buy EMI in distress," Laura Martin, a media analyst with Needham & Co., told The Post.

She estimates Warner/Chappell's 2011 pre-tax earnings at $145 million and thinks the market might pay a multiple of 13 to 15 times, equaling a $2 billion valuation. Her 2010 estimate was for $157 million in pretax earnings.

In an investor note yesterday, analyst Richard Greenfield threw some cold water on Bronfman's plan.

Most buyers will want to see what happens with EMI before making a move on Warner's publishing business, Greenfield said in a note to clients. "What would be the rush to acquire Warner Music assets?" he asked

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