Edgar Bronfman and the management team of Warner Music are expected to stay on the New York music major behind Cee Lo Green and Plan B, after his friend Len Blavatnik completes an agreed $3.3bn offer for the world's number three music company.
Blavatnik's Access Industries won an auction to buy the company with a friendly bid worth $8.25 a share, in a deal that will immediately trigger expectations that under the fresh ownership, Warner Music will try again to bid for EMI, the fourth-ranked music group under the temporary ownership of Citigroup.
Access Industries will assume Warner Music's $2bn of debts, and provide about $1bn of equity, to buy out a company that has been controlled by Bronfman and a group of private equity investors since they bought the business back in 2004 from media conglomerate Time Warner for $2.6bn.
The idea is to ensure that the bid does not overload Warner Music with debt, leaving it the headroom to pursue EMI if it desired. However, sources close to Access Industries say that there is no need for Access/Warner to make a move on the British company to justify the purchase price.
The Access Industries bid is backed by UBS and Credit Suisse – but there were some suggestions that a third bank, Bank of America, pulled out of providing financing at the last minute. Bank of America declined to comment on the rumours.
Russian-American businessman Blavatnik – a major petrochemicals investor, with a stake in TNK-BP – has also occasionally bought media assets. Access has long held a controlling stake in Top Up TV, the pay-TV business, and was an investor in Perform, the recently floated digital media company.
He also knows Warner Music well, having been a board member for four years up and until 2008, and is sufficiently close to Bronfman to have paid about $50m to buy an Upper East side townhouse from the Warner Music chief executive in 2007 – one of the most expensive house purchases in New York history.
Access Industries saw off competition from the billionaire Gores brothers, and a complex bid fronted by Sony Music. Thomas H Lee Partners, Bain Capital Partners and Bronfman, who together hold approximately 56% of the company's outstanding shares, have agreed to vote in favour of the sale. The venture capitalists recouped their original equity investment at the time of the flotation in May 2005 – but returns have been modest since.
However, Warner Music has struggled to make headway with Wall Street since, as falling music sales stemming from ongoing piracy have seen the industry slump. Warner's board turned down a $31-a-share offer from EMI in 2006 after a bid battle that saw Warner and EMI bid for each other – but since 2007 the stock has languished at below $10.
Blavatnik said: "I am excited to extend my longstanding involvement with Warner Music. It is a great company with a strong heritage and home to many exceptional artists. I look forward to working closely with the many talented people within the company."
Bronfman added: "We are delighted that Access will be the new steward of this outstanding business."
Worries about the possibility of a renewed bid for EMI by Warner Music have already prompted Impala, the trade body representing the world's smaller labels, said that they expected the European Commission to take a close look at any deal that reduced the number of majors from four to three. The executive chair of Impala, Helen Smith, said that she hoped that Warner Music would "now enjoy a sound financial future" but added that "any attempt to combine EMI with Warner would similarly be blocked unless there are substantial remedies to solve the competition problems."
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